The effect of multi-purpose shopping on pricing and location strategy for grocery stores

Though it is a well-accepted fact that consumers indulge in multi-purpose shopping, most previous models of store choice assume that grocery shopping trips are single-purpose trips. This paper provides the first empirical analysis of multi-purpose shopping using data on actual shopping trips. A latent class factor analytic logit model is proposed, which provides a representation of the market structure of grocery store competition, while integrating; multi-purpose shopping, retail pricing format and location strategy. We conclude that incorporating multi-purpose shopping trips provides a better understanding of the competitive market structure, and discuss the managerial implications for the selection of marketing strategies.     

The effect of concentration and market power on food prices: evidence from Finland

This research examines empirically the relationship between economies of scale, concentration, and market power in food retailing. With unique, local market data available Finland, the analysis could investigate the impact of both local concentration and industry-wide concentration (which can be interpreted as multimarket contact) are taken into account in the evaluation of grocery retail competitiveness. The results show that the main factor affecting market power is the size of the retail firm. Larger share grocery retailers, for both the local and the national markets, carried higher mark-ups. At the same time, no firm-level scale economies were found from these larger firms. I conclude from these findings that the main purpose of large grocery retail mergers is to gain market power not efficiency.     

Making effective pricing decisions

Pricing is one of the most complex decisions facing any company. Along with a lack of academic interest (especially among marketing academics) in the field of pricing, this complexity has contributed to the dominance of simplified, cost-based formulas when levying prices. This article offers an alternative approach based on the concept of contribution margin and the need to take into consideration only those costs that are related directly to a specific pricing decision, an approach that is especially useful when a company decides to change its prices. Moreover, an empirical study regarding the practical use of this approach is also presented.     

极端死亡率债券的运行机制与定价模型

极端死亡率债券是票息或面值与极端死亡概率相关的债券,能够将寿险公司所面临的极端死亡率风险转移到资本市场。本文阐述了极端死亡率债券的市场发展,包括发行规模、触发机制、债券期限、债券分层、债券评级等,分析了以 Tartan 债券为代表的本金赔付累积型极端死亡率债券的运行机制,并给出了考虑极端死亡率风险的跳跃性特征下的本金赔付累积型极端死亡率债券 Wang 转换定价的解析式。     

The impact of external reference price on consumer price expectations

Comparative pricing practices are frequently used where actual product prices are accompanied by higher external reference prices. All types of stores, regular-price department stores as well as discount stores, use comparative price claims to frame price deals as attractive [Marketing Science 4 (1985) 199]. In this paper, a quadratic model is specified for the impact of external reference price (ERP) on consumer price expectations. Based on the research on communication discrepancy and advertising claim discrepancy, which in turn draw on assimilation-contrast, attribution, and prospect theories, we hypothesize a quadratic effect of external reference prices on consumer price expectations. An interactive, computer-controlled experiment using multiple levels of ERP is used to estimate the proposed model. As hypothesized, support for an inverted U-shape relationship is found between consumers’ updated price expectations and the difference between ERP and initial price expectations. That is, as the difference between ERP and subjects’ initial price expectations increases, subjects’ updated price expectations increase to a point and then start to decrease. We find that the fit of the quadratic model specification for the effect of external reference price on price expectations is noticeably superior to that of linear, logarithmic, square root, and S-shaped specifications. Finally, we provide implications of our results for both retail managers and for regulatory authorities alike.     

Game theoretic pricing models in hotel revenue management: An equilibrium choice-based conjoint analysis approach

This paper explores a game-theoretically founded approach to conjoint analysis that determines equilibrium room rates under differentiated price competition in an oligopolistic hotel market. Competition between hotels is specified in terms of market share functions that can be estimated using multinomial logit models of consumer choice. The approach is based on choice-based conjoint analysis that permits the estimation of attributes weights (“part-worths”) for an additive utility formulation of the utility function. From this, room rates that equilibrate the market, conditioned on the differences in services and facilities offered by competing hotels, can be determined. The approach is illustrated by an example.     

Impact of electronic road pricing on real estate prices in Singapore

Since 1998, Singapore has had an Electronic Road Pricing (ERP) system set up with a network of toll gantries to tax vehicles entering designated areas in the city center during peak hours. Using the congestion rate hike with effect from November 1, 2010 as an exogenous shock, we test the effects of the ERP rate hike on retail, office and residential real estate prices. The results show that the November 2010 congestion toll rate increases cause a 19% drop in retail real estate prices within the cordon ERP areas relative to retail real estate prices outside the cordon ERP areas. The results are statistically and economically significant. However, the toll rate hike has no significant impact private office and residential real estate within cordoned ERP areas. The robustness and falsification tests could not reject the negative effects associated with the toll rate hike on retail real estate prices.     

Shadow costs of incomplete information and short sales in the valuation of the firm and its assets

This paper presents a simple framework for the valuation of compound options within shadow costs of incomplete information and short sales. The shadow cost includes two components. The first component is the product of pure information cost due to imperfect knowledge and heterogeneous expectations. The second component represents the additional cost caused by the short-selling constraint. Information costs are linked to Merton's (1987. Journal of Finance 42, 510) model of capital market equilibrium with incomplete information, CAPMI. This model is extended by Wu et al. (1996. Review of Quantitative Finance and Accounting, 7, 136) who propose an incomplete-information capital market equilibrium with heterogeneous expectations and short sale restrictions, GCAPM. This model is used in our paper to provide for the first time in the literature analytic solutions for derivatives in the presence of both shadow costs of incomplete information and short sales.When deriving the compound call option formula, we consider a call option on a stock, which is itself an option on the assets of the firm. Our methodology incorporates shadow costs of incomplete information and short sales on the firm's assets as well as the effects of leverage in the capital structure. The formula can be useful in the valuation of several corporate liabilities in the presence of information uncertainty and short sales constraints about the firm and its cash flows. Our analysis can be used for the valuation of several real options.     

Price and quality decisions in a vertically-differentiated supply chain with an “Online-to-Store” channel

Because of the prevalence of “Online-to-Store (OS)” channel, customers can purchase differentiated products online and pick up in-store. We develop a Stackelberg game-theoretic model to study the impact of an OS channel on quality levels, demands, prices, and profits of a manufacturer and a retailer in a supply chain. We assume that the retailer acts as a Stackelberg leader, and the manufacturer acts as a Stackelberg follower. The manufacturer produces and sells two products with vertically-differentiated quality levels to the retailer who in turn sells the products to customers through a Store channel, an Online channel, or an OS channel. The retailer incurs a handing cost if the OS channel is available, and consumers bear a shipping cost and a transaction cost when the products are purchased from the Online and Store channels, respectively. We find that the manufacturer should reduce both products’ quality levels and wholesale prices, whereas the retailer can increase the selling prices for a relatively small shipping cost and a not too small handling cost. When the products are available both online and in-store, however, the quality levels, wholesale prices and selling prices might increase for a small shipping cost and a not too small handling cost. Compared to the case in which both products are available online only with the OS channel, adding the Store channel is always beneficial for both parties. The intuition behind these results hinges on the trade-off between the handling cost and the increased market demand for the retailer. Moreover, the quality levels, the wholesale prices of both products, and the selling price of the low-quality product would decrease, while the selling price of the high-quality product increases for a sufficiently low transaction cost and a not too small shipping cost.     

A game theoretic approach for analyzing the competition between national and store brands by considering store loyalty

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