Retailer, Manufacturers, and Individual Consumers: Modeling the Supply Side in the Ketchup Marketplace
Published 2/1/2005
Author: J. Miguel Villas-Boas and Ying Zhao
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Executive Summary
The authors construct a model of a local ketchup market in a Texas city that accounts for household, manufacturer, and retailer decisions. That is, the model develops both demand and supply sides of the market. The authors model the demand side through a latent utility framework that allows for a no-purchase option. Accounting for both sides of the market enables the authors to check for any endogeneity problems on the demand side. They model the supply side through the profit-maximizing decisions of the manufacturers and a multiproduct retailer. Accounting for both the retailer and the manufacturer decisions enables the authors to evaluate the degree of manufacturer competition, the retailer–manufacturers interactions, and the retailer product-category pricing. Given the model assumptions and the market being studied, the authors find that not accounting for demand endogeneity can create bias in the estimation, the retailer seems to price below the static profit-maximizing prices for two of the three brands, and the inferred marginal wholesale prices are below the equilibrium uniform wholesale prices for two brands. The authors discuss the results with regard to channel bargaining, quantity discounts, and retailer category pricing.
Biography
J. Miguel Villas-Boas is Professor of Business Administration, Haas School of Business, University of California, Berkeley. He has a Ph.D. in management from the Massachusetts Institute of Technology. In addition to publishing in Journal of Marketing Research, he has published in Journal of Business, Journal of Economic Theory, Journal of Economics and Management Strategy, Management Science, Marketing Science, and RAND Journal of Economics, among other journals. He is on the editorial boards of Journal of Marketing Research and International Journal of Research in Marketing, is Area Editor for Marketing Science, and is Associate Editor for Quantitative Marketing and Economics. His research interests include competitive strategy, pricing, advertising policies, distribution channels, and customer relationship management.
Ying Zhao is Assistant Professor of Marketing and Wei-Lun Fellow, Department of Marketing, Hong Kong University of Science and Technology. She received her Ph.D. from University of California, Berkeley in 2001. Her research interests include empirical modeling of competitive strategies, pricing, consumer choice models and consumer decision-making. Her papers have appeared in Journal of Marketing Research and Marketing Letters and will appear in Journal of Business.
J Marketing Research, Volume 42, Number 1, February 2005
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