Additive Models with Random Scaling Factors: Applications to Modeling Price Response Functions

  • Peter Wechselberger University of Innsbruck, Austria
  • Stefan Lang University of Innsbruck, Austria
  • Winfried J. Steiner Technical University of Clausthal, Germany

Abstract

We discuss inference for additive models with random scaling factors. The additive effects are of the form (1+γ)f(z) where f is a nonlinear function of the continuous covariate z modeled by P(enalized)-splines and 1 + γ is a random scaling factor. Additionally, monotonicity constraints on the nonlinear functions are possible.


Our work is motivated by the situation of a retailer analyzing the impact of price changes on a brand’s sales in its orange juice product category. Relating sales to a brand’s own price as well as to the prices of competing brands in the category, we estimate own- and cross-item price response functions flexibly to represent nonlinearities and irregular pricing effects in sales response. Monotonicity constraints are imposed so that a brand’s own price is inversely related and the prices of competing brands are directly related to the number
of items sold, as suggested by economic theory. Unobserved store-specific heterogeneity is accounted for by allowing the price response curves to vary between different stores.

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Published
2016-04-03
How to Cite
Wechselberger, P., Lang, S., & Steiner, W. J. (2016). Additive Models with Random Scaling Factors: Applications to Modeling Price Response Functions. Austrian Journal of Statistics, 37(3&4), 255–270. https://doi.org/https://doi.org/10.17713/ajs.v37i3&4.307
Section
Articles