The dynamics of price elasticity of demand in the presence of reference price effects

The authors derive an expression for the price elasticity of demand in the presence of reference price effects that includes a component resulting from the presence of gains and losses in consumer evaluations. The effect of reference price is most noticeable immediately after a price change, before consumers have had time to adjust their reference price. As a result, immediate-term price elasticity is higher than long-term elasticity, which describes the response of demand long after a price change, when reference price effects are negligible. Furthermore, because of the differential effect of gains and losses, immediate-term price elasticity for price increases and price decreases is not equal. The authors provide a quantitative definition for the terms immediate term and long term, using the average interpurchase time and the discrete “memory” parameter. Practical consequences of the distinction between immediate- and long-term elasticities for the estimation and use of elasticity values are discussed. Gadi Fibich (fibich@math.tau.ac.il) is an associate professor in the Department of Applied Mathematics at Tel Aviv University. This research grew out of his interest in applications of mathematical modeling to economics and management science. He is currently working on auction theory. Arieh Gavious (ariehg@bgumail.bgu.ac.il) is a senior lecturer in the Department of Industrial Engineering at Ben Gurion University, Israel. His interest is in application of game theory to economics and management science problems. His current interest is in auction theory. Oded Lowengart (odedl@bgumail.bgu.ac.il) is a senior lecturer in the Department of Business Administration at Ben Gurion University, Israel. His research interests are in the areas of modeling pricing effects on consumer behavior at both aggregate and disaggregate levels, product positioning, and market share forecasting and diagnostics.     

Short product life cycles: implications for the marketing activities of small high-technology companies*

ABSTRACT Many high-technology products are characterized by a “short” product life cycle (PLC)—a short life on the market, a steep decline stage and the lack of a maturity stage. The paper discusses the implications for marketing activities of this pattern in the case of small high-technology companies. It is shown that the marketing of a short PLC product requires a high level of marketing, managerial ability and sophistication as well as an investment of a large amount of resources. It is pointed out that small high-technology firms are faced with a particularly difficult situation in this case because they lack appropriate resources and marketing sophistication. An understanding of the short PLC problem will help the small companies to conduct a more realistic assessment of the magnitude of the marketing task they face in order to adequately prepare themselves or avoid a commitment to projects which are beyond their abilities.     

Dimensions of attitude towards higher mental function curricular objectives (HMCO): a partial order scalogram analysis

The article illustrates the utilization of the POSA (Partial Order Scalogram Analysis) technique in the context of measuring teacher's attitude towards teaching Higher Mental Function Curricular Objectives (such as Comprehension, Analysis, etc.) to the disadvantaged learner.This technique is a new development in the field of scale analysis, and it constitutes an extension of Guttman's scalogram analysis. It is a significant step toward utilizing ordered scales in multidimensional setting. It is based on the principle of identifying subsets of response profiles to scale items, which can be ordered in a way that reveals an additional dimension of the measured trait. The interpretation of this second dimension is facilitated by an auxiliary analysis technique labelled Lattice Space Analysis.     

Contracting, signaling, and moral hazard: a model of entrepreneurs, ‘angels,’ and venture capitalists

Investment by wealthy individuals, known as ‘angels,’ in startup firms is quite significant and has taken off in the last few years. Angels invest in the company at an earlier stage than venture capitalists (VCs) do. This paper examines the relationship between an entrepreneur, an angel, and a VC from the seed investment made by the angel to the exit stage. The study characterizes the equilibrium contracts among the players and provides insights into the related institutional arrangements. Next, the study examines the signaling aspects of the game. The paper also analyzes the moral hazard problems of the entrepreneur and the VC. It shows that the outcome in a startup firm is not efficient because of the free-rider phenomenon.     

Price–quality relationship in the presence of asymmetric dynamic reference quality effects

The purpose of this study is to examine the relationship between price and reference quality and their combined effect on profits. An analytical modeling approach aimed at solving the optimal solution for the profit maximization problem under these conditions is developed, enabling the exact path of the optimal price and quality over time to be depicted. Based on separating the effects of price and reference quality on demand, this analysis also provides insight into the contribution of these two effects to the steady-state solution through elasticities. Our results show that a monotonic inverse relationship exists between price and quality, such that a steady-state level is obtained where the quality?Cprice ratio is lower when reference quality effects exist than when such effects do not exist. In other words, consumers obtain higher quality for a higher price but with a lower price per unit of quality. Overall, accounting for reference quality effects will increase a firm??s profits.     

Information and Common Knowledge in Collective Action

The paper suggests a theoretical game framework to explain collective action dynamics by learning processes. When a certain fact becomes common knowledge due to a certain event, people accumulate knowledge about the state of the world and act accordingly. We concentrate on a conceptual example of the bandwagon dynamic showing the insights which this approach adds to existing studies. We analyze two other conceptual examples showing that the accumulation of information does not always bring people to know the truth about the state of the world. On the other hand, it may make them aware of their ignorance. Several practical implications follow.     

Continuous Time Models of Collective Action and Political Change

This paper presents continuous time models for an analysis of dynamic systems using them to examine the complex dynamics of collective action and political change. The study concentrates on the mutual dependence and behavior of two variables over time: the number of citizens participating in collective action, and the amount of resources mobilized by the government to combat such collective action. The models presented highlight the key components that determine outcomes, and allow for planning, of particular dynamics of collective action and political change. Specifically, the proposed models analyze the impact of collective action on the transition toward democracy as well as possible dynamics of revolution.     

Barriers to the advancement of modern food retail formats: theory and measurement

The recent expansion of global food retailers into emerging economies has made the study of food retail modernization especially relevant at this time. We present a framework to analyze limitations to market share growth of retail formats based on diffusion across consumer segments and by product category. We then propose a measurement approach, based on consumer surveys, that quantifies the impact of these processes on supermarket market share. Food retail modernization is then examined in Hong Kong by this approach for two points in time. In a 1995 diagnostic study, we find that geographic and economic segment diffusion of supermarkets is complete, but that product category-dependent diffusion (specifically perishables) is not. The latter, thereby, becomes the major restriction on supermarket share gain. In 1999, a second study measures the impact of the introduction of superstores, a large modern format, on the perishable restriction to modern format share growth. Consumers perceived superstore perishables to be superior to supermarkets’, but these views had little impact on the ability of modern format to wrest additional share from traditional markets. We discuss diagnostic and monitoring applications, and extensions of the approach to other retail contexts.