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Identifying Competitors in Markets with Fixed Product Offerings

39 Pages Posted: 4 Jan 2014  

Roger Lederman

IBM Research

Marcelo Olivares

Columbia University - Columbia Business School - Decision Risk and Operations; University of Chile - Engineering Department

Garrett van Ryzin

Columbia Business School - Decision Risk and Operations

Date Written: January 3, 2014

Abstract

We develop a novel methodology to identify competitors in markets where spatial location is an important factor of differentiation. In differentiated product markets, determining the key competitors of a focal product requires a characterization of customer demand that includes the identification of heterogeneous customer segments. The prevalent approach to characterize such a demand system is through a random utility model of customer choice. The existing methods used to estimate these models based on aggregate product sales data exploit variation in the set of product offerings to identify customer heterogeneity. Our proposed methodology uses a different empirical strategy: we use variation in observable attributes that determine the size of the distinct customer segments. This approach is useful to study markets where the set of product offerings and their characteristics are fixed or change infrequently. We apply our methodology in the hotel travel industry, where the characterization of key competitors is commonly used in practice to benchmark hotel performance. We collect publicly available data on local events to explain variation in customer segments, differentiating events by location and business/leisure purposes. Our methodology can be used effectively to characterize customer heterogeneity and identify the closest competitors to any focal hotel.

Keywords: choice modeling, customer segmentation, competitive positioning, hotel industry, choice-based revenue management

Suggested Citation

Lederman, Roger and Olivares, Marcelo and van Ryzin, Garrett, Identifying Competitors in Markets with Fixed Product Offerings (January 3, 2014). Columbia Business School Research Paper No. 14-10. Available at SSRN: https://ssrn.com/abstract=2374497 or http://dx.doi.org/10.2139/ssrn.2374497

Roger Lederman (Contact Author)

IBM Research ( email )

T. J. Watson Research Center
1 New Orchard Road
Armonk, NY 10504-1722
United States

Marcelo Olivares

Columbia University - Columbia Business School - Decision Risk and Operations ( email )

3022 Broadway
Uris Hall, #417
New York, NY 10027
United States

HOME PAGE: http://www.columbia.edu/~mo2338/index.htm

University of Chile - Engineering Department ( email )

Republica 701 Santiago
Chile

Garrett Van Ryzin

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

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