Sanjog Misra

On risk, convenience, and Internet shopping behavior

The past century experienced a proliferation of retail formats in the marketplace. However, as a new century begins, these retail formats are being threatened by the emergence of a new kind of store, the online or Internet store. From being almost a novelty in 1995, online retailing sales were expected to reach

Supermarket Pricing Strategies

7 billion by 2000 [9]. In this increasngly timeconstrained world, Internet stores allow consumers to shop from the convenience of remote locations. Yet most of these Internet stores are losing money [6]. Why is such counterintuitive phenomena prevailing? The explanation may lie in the risks associated with Internet shopping. These risks may arise because consumers are concerned about the security of transmitting credit card information over the Internet. Consumers may also be apprehensive about buying something without touching or feeling it and being unable to return it if it fails to meet their approval. Having said this, however, we must point out that consumers are buying goods on the Internet. This is reflected in the fact that total sales on the Internet are on the increase [8, 11]. Who are the consumers that are patronizing the Internet? Evidently, for them the perception of the risk associated with shopping on the Internet is low or is overshadowed by its relative convenience. This article attempts to determine why certain consumers are drawn to the Internet and why others are not. Since the pioneering research done by Becker [3], it has been accepted that the consumer maximizes his utility subject to not only income constraints but also time constraints. A consumer seeks out his best decision given that he has a limited budget of time and money. While purchasing a product from a store, a consumer has to expend both money and time. Therefore, the consumer patronizes the retail store where his total costs or the money and time spent in the entire process are the least. Since the util-

Contract Duration: Evidence from Franchising*

Most supermarket firms choose to position themselves by offering either everyday low prices (EDLP) across several items or offering temporary price reductions (promotions) on a limited range of items. While this choice has been addressed from a theoretical perspective in both the marketing and economic literature, relatively little is known about how these decisions are made in practice, especially within a competitive environment. This paper exploits a unique store level data set consisting of every supermarket operating in the United States in 1998. For each of these stores, we observe the pricing strategy the firm has chosen to follow, as reported by the firm itself. Using a system of simultaneous discrete choice models, we estimate each stores choice of pricing strategy as a static discrete game of incomplete information. In contrast to the predictions of the theoretical literature, we find strong evidence that firms cluster by strategy by choosing actions that agree with those of its rivals. We also find a significant impact of various demographic and store/chain characteristics, providing some qualified support for several specific predictions from marketing theory.

Disentangling Preferences and Learning in Brand Choice Models

Economists generally view standard franchise contracts as efficient, while franchisee advocates view them as exploitive. Consistent with the economic view, we find that contract duration is positively and significantly related to the franchisee’s physical and human capital investments (which are often firm specific). In contrast to assertions by franchisee advocates, we find that these relations exist in subsamples containing only the most established franchisors (as measured by size and experience) and that larger, more experienced franchisors tend to offer longer‐term contracts than do newer franchisors. Our evidence also suggests that there is learning across firms about optimal contract terms.

Contract Duration: Evidence from Franchise Contracts

In recent years there has been a growing stream of literature in marketing and economics that models consumers as Bayesian learners. Such learning behavior is often embedded within a discrete choice framework that is then calibrated on scanner panel data. At the same time, it is now accepted wisdom that disentangling preference heterogeneity and state dependence is critical in any attempt to understand either construct. We posit that this confounding between state dependence and heterogeneity often carries through to Bayesian learning models. That is, the failure to adequately account for preference heterogeneity may result in over-or underestimation of the learning process because this heterogeneity is also reflected in the initial conditions. Using a unique data set that contains stated preferences (survey) and actual purchase data (scanner panel) for the same group of consumers, we attempt to untangle the effects of preference heterogeneity and state dependence, where the latter arises from Bayesian learning. Our results are striking and suggest that measured brand beliefs can predict choices quite well and, moreover, that in the absence of such measured preference information, the Bayesian learning behavior for consumer packaged goods is vastly overstated. The inclusion of preference information significantly reduces evidence for aggregate-level learning and substantially changes the nature of individual-level learning. Using individual-level outcomes, we illustrate why the lack of preference information leads to faulty inferences.

Structural Workshop Paper---Estimating Discrete Games

This study provides evidence on the determinants of contract duration using a large sample of franchise contracts. We find that the term of the contract systematically increases with the franchisees physical and human capital investments, measures of recontracting costs, and the franchisors experience in franchising (which we argue is negatively related to uncertainty about optimal contract provisions). These results are consistent with the hypothesis that the optimal contract duration involves a tradeoff between protecting the parties against potential hold-up of relationship-specific investment and reducing the flexibility that the parties have to respond to environmental changes.

An empirical analysis of software life spans to determine the planning horizon for new software

This paper provides a critical review of the methods for estimating static discrete games and their relevance for quantitative marketing. We discuss the various modeling approaches, alternative assumptions, and relevant trade-offs involved in taking these empirical methods to data. We consider games of both complete and incomplete information, examine the primary methods for dealing with the coherency problems introduced by multiplicity of equilibria, and provide concrete examples from the literature. We illustrate the mechanics of estimation using a real-world example and provide the computer code and data set with which to replicate our results.

Homogeneous Contracts for Heterogeneous Agents: Aligning Sales Force Composition and Compensation

This paper presents an empirical analysis of the life span of over 180 systems aimed at developing a model for determining the planning horizon for new software at the business case stage of software acquisition. At this early stage, the firm has limited knowledge about the project, but must make crucial decisions, such as scope (breadth of requirements), approach (both insource vs. outsource and custom vs. package) and technology, including fit with standards (adhere to current vs. adopt new technology). These decisions are associated with different system lifetimes that, in turn, impact both the costs incurred and benefits received from the system. The failure to explicitly and properly address these differences can lead to the implementation of systems better left undone or to unintended consequences, such as the Y2K problem. We find that technology and approach, but not scope decisions are strongly related to system lifetime. In particular, systems that use an operating system that conforms to the firm’s standard or are acquired using a blended team entail longer system life. On the other hand, shorter system life is indicated if the system is technically complex, custom developed or uses an older programming language. Furthermore, modified packaged software is shorter lived than is a vanilla package. In addition, environmental variables also impact the appropriate horizon. For example, as one would expect, strategic systems are used longer. On the other hand, somewhat surprisingly, systems sponsored by executives last less long and despite the quickening pace of technological and business process advancement, a small trend toward longer lived systems is uncovered.

An empirical investigation into the validity of transitivity and non-satiety assumptions in partial order structures: a note

Observed contracts in the real world are often very simple, which partly reflects the constraints faced by contracting firms in making the contracts more complex. In this article, the authors focus on one such rigidity: the constraints faced by firms in fine-tuning contracts to the full distribution of heterogeneity of their employees. The authors explore the implication of these constraints for the provision of incentives within the firm. The studys application is to sales force compensation, wherein a firm maintains a sales force to market its products. Consistent with ubiquitous real-world business practice, the study assumes that a firm is restricted to fully or partially set uniform commissions across its agent pool. The authors show that this restriction implies an interaction between the composition of agent types in the contract and the compensation policy used to motivate them, leading to a “contractual externality” in the firm and generating gains to sorting. This article explains how this contractual externality arises; discusses a practical approach to endogenizing agents and incentives at a firm in its presence; and presents an empirical application to sales force compensation contracts at a U.S. Fortune 500 company that explores these considerations and assesses the gains from a sales force architecture that sorts agents into divisions to balance firmwide incentives. Empirically, the authors find that the restriction to homogeneous plans significantly reduces a firms payoff, relative to a fully heterogeneous plan, when the firm is unable to optimize the composition of its agents. However, a firms payoff under a homogeneous plan comes very close to that under a fully heterogeneous plan when the firm can optimize both composition and compensation. Thus, in the empirical setting of this study, the ability to choose agents mitigates the loss in incentives from the restriction to uniform contracts. The authors conjecture this result may hold more broadly.

A cointegration analysis of demand: implications for pricing

Research in the area of information acquisition has been based on two key assumptions, namely, nonsatiety (implying more is preferable to less) and transitivity (implying that if A is preferred to B and B to C then A will be preferred to C). While at first glance these assumptions do not seem altogether unjustifiable, they do, in practice, constrain the empirical application of the research models. The primary purpose of the paper is to test the validity of these two key assumptions underlying most theoretical research in information acquisition and resource allocation. We begin by introducing four partial order structures and highlight the assumptions upon which they have been based. We then discuss how these structures could be used in estimating consumer preferences. We also provide a statistical methodology to implement such estimation. In later sections, we implement the empirical model on two data sets and discuss the results and propose generalizations.