Implications of Competitor Representation for Profit-Maximizing Design

Design optimization studies that model competition with other products in the market often use a small set of products to represent all competitors. We investigate the effect of competitor product representation on profit-maximizing design solutions. Specifically, we study the implications of replacing a large set of disaggregated elemental competitor products with a subset of competitor products or composite products. We derive first-order optimality conditions and show that optimal design (but not price) is independent of competitors when using logit and nested logit models (where preferences are homogeneous). However, this relationship differs in the case of random-coefficients logit models (where preferences are heterogeneous), and we demonstrate that profit-maximizing design solutions using latent-class or mixed-logit models can (but need not always) depend on the representation of competing products. We discuss factors that affect the magnitude of the difference between models with elemental and composite representations of competitors, including preference heterogeneity, cost function curvature, and competitor set specification. We present correction factors that ensure models using subsets or composite representation of competitors have optimal design solutions that match those of disaggregated elemental models. While optimal designs using logit and nested logit models are not affected by ad-hoc modeling decisions of competitor representation, the independence of optimal designs from competitors when using these models raises questions of when these models are appropriate to use.

How Much g Is in the Distractor? Re-Thinking Item-Analysis of Multiple-Choice Items

Distractors might display discriminatory power with respect to the construct of interest (e.g., intelligence), which was shown in recent applications of nested logit models to the short-form of Raven’s progressive matrices and other reasoning tests. In this vein, a simulation study was carried out to examine two effect size measures (i.e., a variant of Cohen’s ω and the canonical correlation RCC) for their potential to detect distractors with ability-related discriminatory power. The simulation design was adopted to item selection scenarios relying on rather small sample sizes (e.g., N = 100 or N = 200). Both suggested effect size measures (Cohen’s ω only when based on two ability groups) yielded acceptable to conservative type-I-error rates, whereas, the canonical correlation outperformed Cohen’s ω in terms of empirical power. The simulation results further suggest that an effect size threshold of 0.30 is more appropriate as compared to more lenient (0.10) or stricter thresholds (0.50). The suggested item-analysis procedure is illustrated with an analysis of twelve Raven’s progressive matrices items in a sample of N = 499 participants. Finally, strategies for item selection for cognitive ability tests with the goal of scaling by means of nested logit models are discussed.