NBER

Andre Bonfrer

50 Stamford Road #05-01
Singapore

E-Mail: andrebonfrer@smu.edu.sg
Institutional Affiliation: Lee Kong Chian School of Business

NBER Working Papers and Publications

December 2006Anomalies in Estimates of Cross-Price Elasticities for Marketing Mix Models: Theory and Empirical Test
with Ernst R. Berndt, Alvin Silk: w12756
We investigate the theoretical possibility and empirical regularity of two troublesome anomalies that frequently arise when cross-price elasticities are estimated for a set of brands expected to be substitutes. These anomalies are the occurrence of: (a) negatively signed cross-elasticities; and (b) sign asymmetries in pairs of cross price elasticities. Drawing upon the Slutsky equation from neoclassical demand theory, we show how and why these anomalies may occur when cross elasticities are estimated for pairs of brands that are substitutes. We empirically examine these issues in the context of the widely used Multiplicative Competitive Interaction (MCI) and Multinomial Logit (MNL) specifications of the fully extended attraction models (Cooper and Nakanishi 1988). Utilizing a database of...

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