The highest margin occurs in the high price segment with 370 per cam era Insert

The highest margin occurs in the high price segment

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the high-price segment. The highest margin occurs in the high-price segment with €370 per cam- era. == Insert Table 5 here == Robustness Checks To verify that the results are robust, we employed a number of analyses. First, we pooled the data from all three segments and estimated a nested logit model where market segments rep- resent the nests. Based on the Bayesian Information Criterion, we conclude that the separate es- timation of a standard logit model for each market segment is superior to the estimation of a nested logit model (BIC SMNL =-2.85 < BIC NMNL =-.93). 6 Second, we changed our assumptions about manufacturers’ and retailers’ objectives and their vertical interaction. Specifically, we assumed that manufacturers with more than one um- brella brand (valid only for five firms) maximize their brand portfolio instead of each umbrella brand individually. Alternatively, we assumed that manufacturers maximize profits from each camera independently. We also changed the type of vertical interaction by assuming a Vertical Nash game. Under this condition, retailers are assumed to either maximize category profits or brand profits. The different behavioral assumptions resulted into eight additional alternative mod-
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22 els of competition which we compared with our proposed model. Based on the Vuong (1989)- statistic, the proposed model appears to best represent the data generating process (see Table A-1 in the Appendix and the Web appendix for specification details). Additional robustness tests are in the Web appendix. CLASSIFICATION OF DYNAMIC PRICING STRATEGIES This section describes the classification of the pricing strategies in three parts: method, re- sults, and descriptors of strategy choice. Method To capture dynamic pricing strategies, we define the price path of each camera’s pricing around two broad points: the initial relative price and the subsequent relative price evolution. Previous normative research on dynamic pricing strategies has identified non-monotonic patterns such as U-shaped and inverted U-shaped price paths (e.g., Krishnan, Bass, and Jain 1999). Our approach enables us to obtain linear, nonlinear, monotonic, and non-monotonic patterns of price evolution. Initial relative price . The initial relative price measures the relative difference between the actual launch price and the “fair” market price. We define the static Nash market-equilibrium price as the fair price because that price arises from reasonable demand and supply primitives and adjusts for effects of competitive responses. However, firms are assumed to behave myopically. In a dynamic game, their price is likely to differ from the static Nash price that is reflected in the conduct parameter λ of Equation (4). To measure the initial relative price of a new camera, it is sufficient to look at the estimated initial conduct parameter, λ kis , when LCT =0. A camera is priced relatively high at launch if λ kis >1. Consistent with the literature (e.g., Dolan and Simon 1996; Monroe 2003), we call this a skimming price. A penetration price occurs if λ kis <1.
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23 Evolution of relative price.
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