A Reflection on Analytical Work in Marketing: Three Points of Consensus

12 Pages Posted: 2 Sep 2011

See all articles by Raphael Thomadsen

Raphael Thomadsen

Olin School - Washington University in St. Louis

Robert Zeithammer

University of California, Los Angeles (UCLA) - Anderson School of Management

Dina Mayzlin

University of Southern California - Marshall School of Business

A. Yesim Orhun

University of Michigan, Stephen M. Ross School of Business

Amit Pazgal

Rice University

Debu Purohit

Duke University - Fuqua School of Business

Ram C. Rao

The University of Texas at Dallas, Naveen Jindal School of Management

Michael H. Riordan

Columbia University - Columbia Business School

Jiwoong Shin

Yale School of Management

Monic Sun

Questrom School of Business, Boston University

J. Miguel Villas-Boas

University of California, Berkeley

Date Written: July 19, 2011

Abstract

People make a wide variety of choices as consumers, managers, employers, and regulators. Most of these choices are not made in a vacuum but rather in a context of strategic interactions that make individual payoffs interdependent across the decision makers. This payoff interdependence leads to intertwined individual incentives, necessitating analysis of the entire system before one can predict and understand individual behavior. Analyzing such a complex system requires a precise mathematical framework to develop intuition and qualify theoretical predictions. A commonly used analytical framework is non-cooperative game theory.

We present several general points on which the marketing literature rooted in the paradigm of game theory has reached a broad consensus. We also organize the literature according to three broad substantive areas: competition, information, and market rules. This paper is not an exhaustive review of the literature. Instead, we use several particular examples from each area to illustrate the more general points of consensus that characterize the discourse in the literature. The points of consensus we propose are as follows:

1) Equilibrium analysis within an analytical framework is necessary for testing and refining conventional wisdom about situations with strategic interactions. Equilibrium as a solution concept ensures stability of the system under study, and equilibrium behavior can depart sharply from simpler intuition that does not consider the feedback inherent in strategic interactions.

2) Theoretical predictions can be sensitive to details of the modeling assumptions, making general predictions elusive. A trade-off exists between the generality of modeling assumptions and the usefulness of the resulting insights in answering a concrete question in a specific institutional situation. Therefore, more general models are not necessarily “better,” and the appropriate compromise between generality and usefulness depends on the scope of the question. Further, understanding which details significantly affect a theory’s predictions can be informative in its own right.

3) A two-way road should exist between theory and empirics. In one direction, theory can inform data analysis. In the other direction, empirical analysis can inform the assumptions of the theory. Either way, we agree with Bass (1995, p. G12) that science is “a process of interaction between theory and data that leads to higher level explanations.”

Suggested Citation

Thomadsen, Raphael and Zeithammer, Robert and Mayzlin, Dina and Orhun, A. Yesim and Pazgal, Amit I. and Purohit, Devavrat and Rao, Ram C. and Riordan, Michael H. and Shin, Jiwoong and Sun, Monic and Villas-Boas, J. Miguel, A Reflection on Analytical Work in Marketing: Three Points of Consensus (July 19, 2011). Available at SSRN: https://ssrn.com/abstract=1921010 or http://dx.doi.org/10.2139/ssrn.1921010

Raphael Thomadsen

Olin School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Robert Zeithammer (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Dina Mayzlin

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3360 (Phone)

A. Yesim Orhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Amit I. Pazgal

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Devavrat Purohit

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Ram C. Rao

The University of Texas at Dallas, Naveen Jindal School of Management ( email )

Dallas, TX
United States
972-883-2580 (Phone)
972-883-6727 (Fax)

Michael H. Riordan

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States
212-854-6984 (Phone)

Jiwoong Shin

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://faculty.som.yale.edu/JiwoongShin/

Monic Sun

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353 9640 (Phone)

HOME PAGE: http://people.bu.edu/monic

J. Miguel Villas-Boas

University of California, Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
510-642-1250 (Phone)
510-643-1420 (Fax)

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