A New Stochastic Ultrametric Tree Unfolding Methodology for Assessing Competitive Market Structure and Deriving Market Segments

APPLIED STOCHASTIC MODELS AND DATA ANALYSIS, VOL. 4, 185-204

Posted: 30 May 2016

See all articles by Wayne S. DeSarbo

Wayne S. DeSarbo

Pennsylvania State University

Geert De Soete

Ghent University

J. Carroll

Rutgers, The State University of New Jersey (Deceased)

Venkatram Ramaswamy

University of Michigan, Stephen M. Ross School of Business

Date Written: 1988

Abstract

We present a new methodology for simultaneously assessing competitive market structure and deriving market segments. A hierarchical or ultrametric tree representation is estimated in a maximum likelihood framework from collected paired-comparison choice data. The derived tree portrays both brands and consumers / households / segments as terminal nodes, where the ‘closer’ a brand is to a particular consumer / household / segment in the tree, the higher the predicted probability of that consumer/household/segment choosing that particular brand. This paper initially presents an introduction to the problem of market structure assessment. We review the extensive marketing literature on market structure and survey several competing methodologies. The proposed stochastic ultrametric tree unfolding methodology is technically described and several program options are indicated. An illustration of the proposed methodology is presented with respect to paired comparison choice data collected from a convenience sample involving the over-the-counter analgesics market. Finally, several areas for future research are identified.

Keywords: Market structure analysis, Preference trees, Paired comparisons, Ultrametric trees, Maximum likelihood

Suggested Citation

DeSarbo, Wayne S. and De Soete, Geert and Carroll, J. and Ramaswamy, Venkatram, A New Stochastic Ultrametric Tree Unfolding Methodology for Assessing Competitive Market Structure and Deriving Market Segments (1988). APPLIED STOCHASTIC MODELS AND DATA ANALYSIS, VOL. 4, 185-204, Available at SSRN: https://ssrn.com/abstract=2785825

Wayne S. DeSarbo (Contact Author)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Geert De Soete

Ghent University ( email )

Coupure Links 653
Gent, 9000
Belgium

J. Carroll

Rutgers, The State University of New Jersey (Deceased)

Venkatram Ramaswamy

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

701 Tappan Street
Ann Arbor, MI MI 48109-1234
United States
734-763-5932 (Phone)
734-936-0279 (Fax)

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