An Econometric Model of Location and Pricing in the Gasoline Market

Chan, Tat Y.; Padmanabhan, Vineet; Seetharaman, P. B.

doi:10.1509/jmkr.44.4.622

Cited by 54 publications

(41 citation statements)

References 29 publications

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“…In some situations, one option to address the codetermination is to impose restrictions from an assumed model of supply (e.g., weekly Bertrand pricing) into the demand estimation step. This improves efficiency and helps pin down structural parameters (e.g., Thomadsen 2005 shows how a Bertrand pricing model helps pin down substitution patterns between geographically differentiated firms, an intuition also utilized in Chan et al 2007). The offsetting cost of the identification or efficiency gain is potential misspecification bias if the wrong supply model is assumed.…”

Section: What Determines "Model-form"?mentioning

confidence: 99%

Structural Workshop Paper—Discrete-Choice Models of Consumer Demand in Marketing

Chintagunta

Nair

2011

Marketing Science

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M arketing researchers have used models of consumer demand to forecast future sales, to describe and test theories of behavior, and to measure the response to marketing interventions. The basic framework typically starts from microfoundations of expected utility theory to obtain an econometric system that describes consumers' choices over available options, and to thus characterize product demand. The basic framework has been augmented significantly to account for quantity choices, to accommodate purchases of several products on a single purchase occasion (multiple discreteness and multicategory purchases), and to allow for asymmetric switching between brands across different price tiers. These extensions have enabled researchers to bring the analysis to bear on several related marketing phenomena of interest. This paper has three main objectives. The first objective is to articulate the main goals of demand analysis-forecasting, measurement, and testing-and to highlight several considerations associated with these goals. Our second objective is to describe the main building blocks of individual-level demand models. We discuss approaches built on direct and indirect utility specifications of demand systems, and we review extensions that have appeared in the marketing literature. The third objective is to explore a few emerging directions in demand analysis, including considering demand-side dynamics, combining purchase data with primary information, and using semiparametric and nonparametric approaches. We hope researchers new to this literature will take away a broader perspective on these models and see the potential for new directions in future research.

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Section: What Determines "Model-form"?mentioning

confidence: 99%

Structural Workshop Paper—Discrete-Choice Models of Consumer Demand in Marketing

Chintagunta

Nair

2011

Marketing Science

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“…However, in these studies pricing decisions are not studied. Chan, Padmanabhan and Seetharaman (2007) estimate an econometric model of location and pricing decisions of gasoline stations in the Singapore market, but this paper is focused on the planner's problem rather than on the outcome of equilibrium competition between firms. To summarize, therefore, an empirical test of simultaneous product design and pricing decisions of firms in response to market competition (as in this paper) is missing in the literature.…”

Section: Related Researchmentioning

confidence: 99%

Too close to be similar: Product and price competition in retail gasoline markets

Iyer

Seetharaman

2008

Quant Mark Econ

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We examine how product and pricing decisions of retail gasoline stations depend on local market demographics and the degree of competitive intensity in the market. We are able to shed light on the observed empirical phenomenon that proximate gasoline stations price very similarly in some markets, but very differently in other markets. Our analysis of product design and price competition between firms integrates two critical dimensions of heterogeneity across consumers: Consumers differ in their locations and in their travel costs, as in models of horizontal differentiation. They also differ in their relative preference or valuations for product quality dimensions, in terms of the offered station services (such as pay-at-pump, number of service bays or other added services), as in models of vertical differentiation. We find that the degree of local competitive intensity and the dispersion in consumer incomes are sufficient to explain variations in the product and pricing choices of competing firms. Closely located retailers who face sufficient income dispersion across consumers in a local market may differentiate on product design and pricing strategies. In contrast, retailers that are farther apart from each other may adopt similar product design and pricing strategies if the market is relatively homogeneous on income. Using empirical survey data on prices and station characteristics gathered across 724 gasoline stations in the St. Louis metropolitan area, and employing a multivariate logit model that predicts the joint probability of stations within a local market differentiating on product design and pricing strategies as a function of market demographics and local competitive intensity, we find strong support for the central implications of the theory.

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“…This paper therefore represents a further development in the literature by considering both the consumers' and advertisers' decisions. Finally, we model how advertisers compete for ad positions, which is contiguous to the location competition wherein interfirm competition results from the substitutability of demand among neighboring firms (e.g., Thomadsen 2005, Seim 2006, Chan et al 2007). Yet our empirical context is more complicated.…”

Section: Literature Reviewmentioning

confidence: 99%

Consumer Search Activities and the Value of Ad Positions in Sponsored Search Advertising

Chan

Park

2015

Marketing Science

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C onsumer search activities can be endogenously determined by the ad positions in sponsored search advertising. We model how advertisers compete for ad positions in sponsored listings and, conditional on the list of sponsored ads, how online consumers search for information and make purchase decisions. On the consumer side, assuming that users browse information from top to bottom and adopt a sequential search strategy, we develop a two-stage model of consumer search (whether to click and whether to stop the search) that extends the standard sequential search framework in economics literature. On the advertiser side, it is very difficult to fully specify the optimal strategies of advertisers because the equilibrium outcome depends on variables that researchers do not observe. As we have an incomplete model of advertiser competition, we propose using the necessary condition that, at equilibrium, no advertiser will find another available ad position more valuable than the one it has chosen. Using a data set obtained from a search engine, we find that consumers can be classified into two segments that exhibit distinct search behaviors. For advertisers, the value of search advertising comes primarily from terminal clicks, which represent the last link (including organic results) clicked by an online user. We also demonstrate that the value of ad positions depends not only on the identities and positions of the advertisers in sponsored listings but also the composition of online consumers who exhibit distinct search behaviors.

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An Econometric Model of Location and Pricing in the Gasoline Market

Abstract: for their valuable guidance and comments during the preliminary stages of this project. They appreciate the many insightful comments by participants at the Summer Institute of Competitive Strategy in Berkeley, Calif.

Cited by 54 publications

References 29 publications

Structural Workshop Paper—Discrete-Choice Models of Consumer Demand in Marketing

Structural Workshop Paper—Discrete-Choice Models of Consumer Demand in Marketing

Too close to be similar: Product and price competition in retail gasoline markets

Consumer Search Activities and the Value of Ad Positions in Sponsored Search Advertising

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