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Title: The emergence of market structure in new repeat-purchase categories : a dynamic approach and an empirical application
Authors: Bronnenberg, Bart J.
Mahajan, Vijay
Vanhonacker, Wilfried R.
Keywords: Market structure
Structural equations
Impulse-response analysis
MCI models
Issue Date: 23-Dec-1998
Series/Report no.: Marketing Working Paper Series ; MKTG 98.130
Abstract: The authors study the emergence of brand-shares and the entry/exit dynamics among competing brands in new repeat-purchase categories. In such new categories, market-shares are strongly affected by retailer distribution-decisions. Because, at the aggregate level, such decisions are spread out over time, the success of a manufacturer in obtaining distribution from adopting retailers may positively depend on its brand's market-share to date. This creates a temporary positive feedback between a brand's market-share and its distribution over the growth-stage of the category. This feedback, along with how manufacturers influence their brand's market-share and distribution, is hypothesized to drive the emergence of the market structure. The authors use a logically consistent model of this feedback to quantify how a brand's coupled market-share and distribution evolve and to help answer several questions about the relative efficiency of influencing share (pull) vs. seeking distribution (push). This model also allows to study changes in the strength of feedback and in the manufacturer's influence on its market-share as the new category moves from its growth it its mature stage. Estimation on data from the U.S. ready-to-drink tea category suggests that positive feedback between market-share and distribution exists and that it is limited to the early growth stage of the category. This makes that the effects of a change in market-share or in distribution on the subsequent dynamics of market-shares depend on the maturity of the category. Whereas early-on in the life-cycle of the category, small changes in market-share or distribution generate long-term larger changes in market-share, later such momentum is absent. In this context, it is discussed how a late entrant fails to capture a sizeable market-share.
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