A nested logit model of strategic promotion

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

This paper presents a test of the nature of the pricing and promotion game played by supermarket retailers in a large, U.S. market. Using a nested-logit modeling approach, the results show that retailers set discount depth and promotional frequency in a manner that is less competitive than Bertrand. We also find that the elasticity of substitution among competing stores is lower than among products within each store, but not equal to zero. Therefore, sales do cannibalize existing products, but can also build a significant amount of store-traffic. Relative to strategic factors, price promotions have their greatest impact on store-conditional product demand.

Original languageEnglish (US)
Pages (from-to)63-91
Number of pages29
JournalQuantitative Marketing and Economics
Volume5
Issue number1
DOIs
StatePublished - Mar 2007

Keywords

  • Game theory
  • Nested logit
  • Product differentiation
  • Promotion
  • Retailing
  • Strategic marketing

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)
  • Marketing

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