mand systems that involve multiple brands and multiple stores. “They treat these demand models in a hierarchical Bayesian framework (Montgomery 1).” Montgomery uses prior information based on the restrictions imposed by additive utility models. To explain additive utility approaches further, price elasticities are driven by a general substitution parameter as well as brand-specific expenditure elasticities (Montgomery 1). Along with the additive utility approach, Montgomery also used a differential shrinkage approach. Differential shrinkage is when the price elasticities are held close to restrictions of the additive utility theory and “store-to-store variation is accommodated through differences in expenditure elasticities.” After applying these new methods, Montgomery found that there were drastic improvements over the existing Bayesian and non-Bayesian methods (Montgomery 1).The Detailed scanner data and pricing conditions have been made available for nearly every type of consumer-packaged good and all major retail formats. What does this do? It makes it possible to analyze and study the market structure, brand competition, and elasticity-based approaches to optimal pricing. (Montgomery 1). After analyses on the estimation of a demand system and the associated price elasticities, individual stores or groups of stores can exhibit micro-pricing. This is when the individual stores or the groups of stores charge different prices to exploit differences in consumer price sensitivity (Montgomery 2). Regardless of the attempts of a quantitative demand-based approach to pricing issues, it is still distant from fully calculating the price that creates the best demand elasticity. This is because it is difficult to get reasonable price elasticity estimates. Conclusion/SummaryThere are many different types of elasticities. They can be found in just about every retail store. With this in mind, we note that there are new and...
