The document summarizes Bernd Skiera's 2010 article on the differences between structural and reduced-form models in improving pricing decisions. Structural models use economic theory to model demand, costs, competition and estimate price responses. Reduced-form models directly estimate price-response functions from historical data without an underlying economic framework. Skiera finds that structural models provide more accurate predictions of pricing decisions under different market conditions compared to reduced-form models.

1. Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions Prof. Dr. Bernd Skiera Skiera, Bernd (2010), "How Do Structural Models Help Improve Pricing Decisions?", Zeitschrift Marketing – Journal of Research and Management, Vol. 6, Issue 1, 91-99

2. More Information about Topic

3. What is wrong here? Skiera, B. (2010), "Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions", Marketing – Journal of Research and Management, 6(1), 91-99

4. Drivers andEffectsof Prices pricereactiontocostchanges Price price-responsefunction pricesofcompetitors(pricereactionfunction) CostFunction Quantity Cost Revenue Profit Skiera, B. (2010), "Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions", Marketing – Journal of Research and Management, 6(1), 91-99

5. Size of Price Elasticities (1/2) Mean= -2.62 Mode = -2 to-2.99Std. Dev. = 2.21 Bijmolt, T.H.A. / Heerde, van H.J. / Pieters, R.G.M. (2005), "New Empirical Generalizations on the Determinants of Price Elasticity", Journal of Marketing Research, 42, 141-156.

6. Size of Price Elasticities (2/2) Frequency Mean = -1.76 Mode = -1.5 Std. Dev. = 1.74 N = 367 Price Elasticity -10 -8 -6 -4 -2 0 2 Tellis, G.J. (1988), "The Price SensitivityofSelective Demand: A Meta-Analysis ofEconometric Models ofSales", Journal of Marketing Research, 25, 391-404.

7. Measuring Price-Response Linear demand function Profit funktion: Optimal Price:

8. Results in Case of Price Response(Linear Price Response Function) Skiera, B. (2010), "Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions", Marketing – Journal of Research and Management, 6(1), 91-99

9. Results in Case of Cost Changes(Linear Price Response Function) Skiera, B. (2010), "Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions", Marketing – Journal of Research and Management, 6(1), 91-99

10. Price-Reaction (Bertrand-Nash) Expansion of Demand Function: Bertrand-Nash-Equilibrium: Optimal Price:

11. Summary for Bertrand-Nash-Pricing (Linear Case) Skiera, B. (2010), "Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions", Marketing – Journal of Research and Management, 6(1), 91-99

12. Price-Reaction (Stackelberg Leader-Follower) Stackelberg Leader-Follower Equilibrium: Leader (here firm 1) setspriceanddoes not react Follower (here firm 2) reacts

13. CollusivePricing Firms choose prices to maximize combined profits

14. InfluenceofFunctional Form Multiplicativesalesresponsefunction Nocompetition: Competition:

15. SummaryofResults Skiera, B. (2010), "Differences in the Ability of Structural and Reduced-Form Models to Improve Pricing Decisions", Marketing – Journal of Research and Management, 6(1), 91-99