Dynamic and Competitive Effects of Direct Mailings
49 Pages Posted: 23 Dec 2006
Date Written: September 7, 2006
We propose a dynamic direct mailing response model with competitive effects, where purchase and promotion history are incorporated. We then map the dynamic competitive interactions amongst the firms sending the mailings. We investigate the short- and long-run impact of a direct mailing on the revenues of the firm sending the mailing and on the revenues of its competitors. The model accounts for unobserved heterogeneity across households. We estimate the model in the charitable giving setting, as sending direct mailings represents a large part of charitable fundraising activity. Households often receive direct mailings of different charities within a short period of time and competition is highly relevant. We construct a unique database by merging the databases of three large charity organizations in the Netherlands. This results in household level data on the direct mailings received and the donations made by each household to each charity. Our results show that charitable direct mailings are short-run complements, that is, the direct mailings tend to increase the total pie that is divided among the charities. At the same time, the charitable direct mailings are long-run substitutes. In the long run they fight for a piece of the pie that households have available for charitable giving.
Keywords: Competition, Dynamics, Direct Mailings
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