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Endogeneity and Exogeneity in Sales Response Functions

Wolfgang Polasek

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Endogeneity and exogeneity are topics that are mainly discussed in macroeconomics. We show that sales response functions (SRF) are exposed to the same problem if we assume that the control variables in a SRF reflect behavioral reactions of the supply side. The supply side actions are covering a flexible marketing component which could interact with the sales responses if sales managers decide to react fast according to new market situations. A recent article of Kao et al. (2005) suggested to use a class of production functions under constraints to estimate the sales responses that are subject to marketing strategies. In this paper we demonstrate this approach with a simple SRF(1) model that contains one endogenous variable. Such models can be extended by further exogenous variables leading to SRF-X models. The new modeling approach leads to a multivariate equation system and will be demonstrated using data from a pharma-marketing survey in German regions.

Keywords: Sales response functions; stochastic derivative constraints; simultaneous estimation; MCMC; pharma-marketing; model choice (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-bec and nep-mkt
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