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Constrained price, address, or logit brand demand models: An econometric comparison in the Boston fluid milk market

Author

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  • Li Tian

    (Food Marketing Policy Center, University of Connecticut, 1376 Storrs Road Unit 4021, Storrs, Connecticut 06269-4021)

  • Ronald W. Cotterill

    (Agricultural and Resource Economics and Food Marketing Policy Center, University of Connecticut, 1376 Storrs Road Unit 4021, Storrs, Connecticut 06269-4021, Author to whom correspondence should be sent.)

Abstract

This article estimates a general linear demand model for three fluid milk brands. It finds perverse signs and complementarity among these substitutes. We develop three constrained models to eliminate perverse signs: a price conduct constraint in the linear model that links private label and Garelick pricing, a generalized Mills address model, and the logit model. Statistical tests indicate that each of the three constrained models produces acceptable substitution patterns and that none is preferred to the other two. On nonstatistical grounds, however, the Mills and price-constrained models perform best. This is the first empirical study of the Mills address model of private-label pricing. Finally, we demonstrate that estimated price-reaction functions and the corresponding total elasticities, which capture only strategic non-collusive interaction in these Nash Bertrand models, provide interesting insight into competition among brands. EconLit citation: L670, L130.] © 2005 Wiley Periodicals, Inc. Agribusiness 21: 149-166, 2005.

Suggested Citation

  • Li Tian & Ronald W. Cotterill, 2005. "Constrained price, address, or logit brand demand models: An econometric comparison in the Boston fluid milk market," Agribusiness, John Wiley & Sons, Ltd., vol. 21(2), pages 149-166.
    • Handle: RePEc:wly:agribz:v:21:y:2005:i:2:p:149-166
    DOI: 10.1002/agr.20040
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    References listed on IDEAS

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    1. Jerry Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annals of Economics and Statistics, GENES, issue 34, pages 143-157.
    2. repec:adr:anecst:y:1994:i:34:p:06 is not listed on IDEAS
    3. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    4. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
    5. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities For Demand And Competitive Strategy Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 23(2), pages 1-15, October.
    6. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
    7. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities for Demand and Competitive Strategy Analysis," Agricultural and Resource Economics Review, Cambridge University Press, vol. 23(2), pages 125-139, October.
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    Cited by:

    1. Zhuang, Yan & Dimitri, Carolyn & Jaenicke, Edward C., 2010. "Price Reactions And Organic Price Premiums For Private Label And Branded Milk," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany 116388, European Association of Agricultural Economists.
    2. Cotterill, Ronald & Cohen, Michael & Tian, Li, 2006. "Private Labels: Supermarket Chain Buyer Power in Action," Research Reports 149188, University of Connecticut, Food Marketing Policy Center.
    3. Tian, Li, 2006. "The Strategic Effect of Private Label in a Vertical Bargaining Model," Research Reports 170112, University of Connecticut, Food Marketing Policy Center.
    4. repec:ags:uconnr:149205 is not listed on IDEAS

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