There is a growing interest in both marketing and economics in the dynamics of decision-making. Researchers have proposed richer behavioral models of consumers and firms with the purpose of learning behavioral primitives that static models cannot capture. In these studies, models move away from stylized views of decision-making by explicitly incorporating intertemporal dynamics. They assume forward-looking agents who develop expectations on the future and how it will be affected by their current actions. This dissertation consists of three such studies. The first essay develops and estimates a dynamic model of consumers' decisions, in order to investigate the effectiveness of reward programs in travel industries. The structure of the dynamic model is necessary to determine the marginal utility that consumers extract from cash spent on travel goods and from rewards. I find that there is a significant portion of customers who get more value from one dollar worth of rewards than from one dollar paid for the good purchased. This result is consistent with the idea that in these industries an important segment of customers are employees who travel for work and make purchase decisions using the money of their employer. In this situation, the reward scheme can exploit the principal-agent separation between employer and employee by inducing the latter, who is the recipients of the rewards, to choose higher-priced goods. The study also provides counterfactual analyses to quantify the impact of these consumers on the effectiveness of the reward program, and to evaluate the difference in terms of sales generated between reward programs and price reductions. The second essay focuses on firms' forward-looking behavior, and proposes an approach for extending the analysis of dynamic games to multi-product firms. Ericson and Pakes (1995) propose what has since become the standard framework for dynamic games. The computational tractability of their model, however, limits its application to cases where firms own only a few products. The approach proposed here shows that it is possible to collapse the information generated by multiple products offered by the firms into a few market variables. This result can be used to study dynamics in differentiated-product industries, which have found scarce attention due to the limitations of the original framework. The third essay is also a study of firms' dynamic behavior, providing an empirical application of the analytical result proposed in the second essay. The demand-supply equilibrium analyses proposed in the literature so far have almost exclusively modeled firms' pricing decisions, ignoring product assortment. In this study I estimate a dynamic supply system where firms make pricing and new product location decisions jointly. I use the model to investigate why companies in the U.S. ready-to-eat cereal market tend to launch new products that are similar to their existing ones. My estimates suggest the existence of an asymmetric fixed-cost structure that prevents firms from launching new products in any segment of the market.

Last modified

• 09/10/2018

Creator

• Federico Rossi

DOI

• https://doi.org/10.21985/N2B15V

Subject

• Marketing

Keyword

• Marketing
• Business Administration

Date created

• 2008-05-09

Resource type

• Dissertation

Rights statement

• In Copyright