Demand Estimation Using Managerial Responses to Automated Price Recommendations

We provide a new framework to identify demand elasticities in markets where managers rely on algorithmic recommendations for price setting and apply it to a data set containing bookings for a sample of midsized hotels in Europe. Using nonbinding algorithmic price recommendations and observed delay in price adjustments by decision makers, we demonstrate that a control-function approach, combined with state-of-the-art model-selection techniques, can be used to isolate exogenous price variation and identify demand elasticities across hotel room types and over time. We confirm these elasticity estimates with a difference-in-differences approach that leverages the same delays in price adjustments by decision makers. However, the difference-in-differences estimates are more noisy and only yield consistent estimates if data are pooled across hotels. We then apply our control-function approach to two classic questions in the dynamic pricing literature: the evolution of price elasticity of demand over and the effects of a transitory price change on future demand due to the presence of strategic buyers. Finally, we discuss how our empirical framework can be applied directly to other decision-making situations in which recommendation systems are used. This paper was accepted by Omar Besbes, revenue management and market analytics.

Tourism Demand Elasticities by Income and Prices of International Market Regions: Evidence Using Vietnam’s Data

This study aims to determine tourism demand elasticities by income and prices of regions, as well as total international markets. It is deployed to a total of 10 major source markets and two separate regions, from Asia and intercontinental to Vietnam. The results of data analysis for the period 1995–2019 and using a nonlinear panel ARDL approach show that tourism demand from major Asian markets to Vietnam is strongly income elastic, but tourism demand from major intercontinental markets to Vietnam is relatively price inelastic. Tourism demand in intercontinental markets is less elastic to price, but in Asian markets it is quite price sensitive, especially own price elasticities. In addition, different effects of income and prices are found in most of the major markets. Study results have provided useful insights into different types of tourism goods and price sensitivity between market regions, as well as the degree of substitute destinations.

A Simple Method for Bounding the Elasticity of Growing Demand with Applications to the Analysis of Historic Antitrust Cases

We propose a simple method, requiring only minimal data, for bounding demand elasticities in growing, homogeneous-product markets. Since growing demand curves cannot cross, shifts in market equilibrium over time can be used to “funnel” the demand curve into a narrow region, bounding its slope. Our featured application assesses the antitrust remedy in the 1952 DuPont decision, ordering incumbents to license patents for commercial plastics. We bound the demand elasticity significantly below 1 in many post-remedy years, inconsistent with monopoly, supporting the remedy’s effectiveness. A second application investigates whether the 1911 dissolution of American Tobacco fostered competition in the cigarette market. (JEL K21, L24, L65, L66, N41, N42, O34)

Price promotion of organic foods and consumer demand

Existing studies have examined the demand elasticities for organic products only in select categories, and their results for consumers' sensitivity to price changes are inconsistent. Evidence regarding the effects of price promotions on the demand for organic foods vs non-organic foods is scarce. This study aims to (1) examine the own-price elasticities of organic foods vs non-organic counterparts both with and without a promotion in a variety of product categories, and (2) investigate how the distinctive promotion effects between organic and non-organic counterparts depend on food category features. Using purchase data for 36 food categories from the 2015 Nielsen Consumer Panel, we find differential own-price elasticities for organic and non-organic foods, regardless of whether the product is purchased with a promotion. When the products are purchased with a promotion, we find stronger price promotion effects of organic virtues than non-organic virtues and weaker price promotion effects of organic vices than conventional vices. Price promotions of organic foods are more likely to induce health-conscious consumers to switch from conventional purchases to organic purchases in virtues.