Note—Extending the Rotterdam Model to Test Hierarchical Market Structures
Marketing Science · 1989 · Volume 8 · Issue 2
Abstract
Two issues that have implications across a firm's marketing activities are the estimation of the market response functions, and the determination of the structure of the market in which its products compete. In a recent paper, Clements and Selvanathan (Clements, K. W., E. A. Selvanathan. 1988. The Rotterdam demand model and its application to marketing. Marketing Sci. 7 (Winter) 60–75.) describe how the Rotterdam Demand System can be used to study these two issues in a joint framework. In this note we extend their model to test hierarchical market structures using data at the brand/form level. We also incorporate idiosyncratic response coefficients that capture the effects of advertising and/or other nonprice marketing mix variables separate from the effects of a price change. These extensions provide additional insights into the nature and extent of competition among brands within a product class.
Keywords
market structures, demand estimation, separability of preferences
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