DYNAMIC STRATEGIC INTERACTION: A SYNTHESIS OF MODELING METHODS

Research Methods/ Statistical Methods,

A Nested Logit Model of Strategic Promotion

Retailers use sales "price promotions" for a number of potential reasons. There is relatively little research, however, on their strategic role among frequently consumed perishable products. Using a two-stage, nested logit model of retail equilibrium, we show that promotion will be most effective (ie. increase store-level sales) if products are highly differentiated, but stores are relatively similar. To test this hypothesis, we an oligopolistic model of promotion rivalry with category-level scanner data from the four largest supermarket retailers in a major U.S. metropolitan market. The results show that promotion has a greater impact on store share than product share, because the elasticity of substitution among stores is larger than the elasticity of substitution among products. Consequently, promotion has its greatest value in driving demand for differentiated products among stores that are similar. This finding supports the observed trend toward premium private label products being offered by supermarket retailers.Research Methods/ Statistical Methods,

COMMODITY R&D, PATENTING, AND PROMOTION

There is considerable evidence of high returns to public investments in agricultural R&D, but because intellectual property in agriculture is considered a public good, little R&D investment by growers themselves. This study investigates the potential for growers to increase commodity sales through product research, development, patenting and promotion in a dynamic commodity-market model. Theoretical hypotheses derived from the solution to this model are tested in an empirical example from Washington apples. Estimation results show that, despite significant spillovers to research and promotion expenditure, growers can improve the effectiveness of generic commodity promotion by funding R&D programs as well.Research and Development/Tech Change/Emerging Technologies,

The Demand for Specialty-Crop Insurance: Adverse Selection and Moral Hazard

Risk and Uncertainty,

A TWO-STAGE MODEL OF THE DEMAND FOR SPECIALTY CROP INSURANCE

Legislators are considering raising catastrophic (CAT 50% coverage) crop insurance premiums. However, estimates of a two-stage coverage-choice and participation model using county-level data from California grape growers show that the demand for CAT insurance is price-elastic, therefore, premium increases will worsen the financial performance of the grape-insurance program.crop insurance, discrete / continuous choice, grapes, multinomial logit, Research Methods/ Statistical Methods, Risk and Uncertainty,

LOCATIONAL DETERMINANTS OF US FOREIGN DIRECT INVESTMENT IN FOOD AND KINDRED PRODUCTS IN LATIN AMERICA

As US investment in food processors abroad grows, understanding the factors causing this growth is critical to US trade and investment policy. This study uses an ownership / location / internalization approach in finding market size and trade openness important determinants of US foreign direct investment in Latin American food and kindred products.Multinational Firms, International Business, Economic Development, Agribusiness, International Development,

COMMODITY R&D AND PROMOTION

Considerable evidence exists of high returns to public and private investment in commodity research and development programs. This study investigates the potential returns to product research, development, and marketing in a dynamic commodity-market model. Theoretical hypotheses derived from the solution to this model are tested in an empirical example of Washington apples. Estimation results show that, despite significant spillovers to research and promotion expenditure in this industry, there is nonetheless considerable latitude to increase annual sales.advertising, commodity, innovation, optimal control, Poisson model, research and development, Marketing, Research and Development/Tech Change/Emerging Technologies, L15, M37, Q13, Q16,

HYSTERESIS AND THE SHORTAGE OF AGRICULTURAL LABOR

The GAO disputes growers' claims of a labor shortage, using unreliable farm employment data rather than relative wages. A shortage, implying a failure of intersectoral arbitrage, may arise due to hysteresis in labor movement. Estimates find the probability of a farm labor shortage (30%) three times that of a surplus.Labor and Human Capital,

Market Power in the Carbonated Soft Drink Industry

We investigate the strategic pricing for leading brands sold in the carbonated soft drink (CSD) market in the context of a flexible demand specification (i.e. random parameter nested logit) and a structural pricing equation. Our approach does not rely upon the often used ad hoc linear approximations to demand and profit-maximizing first-order conditions. We estimate the structural pricing equation using four different estimators (i.e. OLS, LIML, 2SLS, and GMM) and compare the implied deviation from Bertrand-Nash competition. Our results suggest that retailers, on average, price CSD brands below their cost, likely a result of the competitive retailing environment. We also find CSD wholesalers price their brands significantly more cooperatively than Bertrand-Nash would suggest, thus inflating profits.Market Power, Carbonated Soft Drinks, Econometrics, LIML, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Industrial Organization,

Print Advertisement Characteristics and Apple Variety Attraction: A Mimic Model Approach

A structural latent variable model of apple variety demand is used to analyze the effect of variety specific newspaper advertisement characteristics on variety attraction (preferences), and in turn on variety demand. The influence of advertisement size, the use of color and the Washington apple logo were analyzed. The estimated variety attraction variable is important in explaining demand. Model specifications which exclude this variable tend to understate demand elasticities. Advertisement size has a positive impact on Granny Smith, Fuji, and Gala sales. Red Delicious sales are positively influenced by color ads, but negatively affected by ads with the Washington apple logo.Apple demand, newspaper advertisements, structural latent variable model, Marketing,