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Discrete choice models of firms’ strategic decisions

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Abstract

This paper outlines the methods and applications related to the nascent area of empirical discrete games in marketing. Many key strategic decisions firms make involve discrete choices such as deciding the location of a new store, determining where in product space to position a product, or what options to offer in a service contract. These decisions are fairly complex and typically involve the consideration of a number of demand, cost, and competitive factors. What makes these discrete choices particularly interesting (and challenging to analyze) is that they are interrelated with the choices of other firms because firms take into account the actions of their competitors when making their own decisions. We describe the basic problem of dealing with interrelated discrete choices in a game-theoretic framework and present the various estimation methods available. A discussion of the existing applications and future research opportunities concludes the article.

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Notes

  1. For an excellent survey of the growing literature in social interactions in a consumer context, see Hartmann et al., “Interdependent Choices and Social Multipliers: Identification, Methods and Policy Implications” in this issue.

  2. Also known as the social surplus function.

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Authors and Affiliations

  1. Graduate School of Business Stanford, Stanford, CA, USA

    Michaela Draganska, Sridhar Narayanan & Peter Reiss

  2. University of Rochester, Rochester, NY, USA

    Sanjog Misra & Dan Horsky

  3. University of Toronto, Toronto, Canada

    Victor Aguirregabiria

  4. University of Minnesota, Minneapolis, MN, USA

    Pat Bajari

  5. Stanford University, Stanford, CA, USA

    Liran Einav

  6. Duke University, Durham, NC, USA

    Paul Ellickson

  7. University of Chicago Graduate School of Business, Chicago, IL, USA

    Yesim Orhun & Ting Zhu

  8. Wharton School of Business, Philadelphia, PA, USA

    Katja Seim

  9. Stern School of Business, New York University, New York, NY, USA

    Vishal Singh

  10. Anderson School of Business, University of California, Los Angeles, Los Angeles, CA, USA

    Raphael Thomadsen

Authors
  1. Michaela Draganska
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  2. Sanjog Misra
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  3. Victor Aguirregabiria
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  4. Pat Bajari
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  5. Liran Einav
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  6. Paul Ellickson
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  7. Dan Horsky
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  8. Sridhar Narayanan
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  9. Yesim Orhun
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  10. Peter Reiss
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  11. Katja Seim
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  12. Vishal Singh
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  13. Raphael Thomadsen
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  14. Ting Zhu
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Correspondence to Michaela Draganska.

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Draganska, M., Misra, S., Aguirregabiria, V. et al. Discrete choice models of firms’ strategic decisions. Mark Lett 19, 399–416 (2008). https://doi.org/10.1007/s11002-008-9060-3

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  • DOI: https://doi.org/10.1007/s11002-008-9060-3

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