BUS470 Retail Analytics

• Topics

  Understanding firms’ strategic pricing is as important for those working in the firms as when trying to understand the functioning of a market. For some markets we observe nationwide uniform price strategies, for others we see prices varying with local demand. For many other markets pricing has become dynamic and individualized. In markets where capacity is restricted, dynamic pricing is used to maximize sales and profits, examples include airline seats, hotel rooms, train tickets and lately in London the band Oasis used dynamic pricing when selling concert tickets. In some markets we see algorithmic pricing, designing individualized prices through advanced pricing mechanisms. In other markets we see periodic price cycles, asymmetric pricing and price leadership. In this course the aim is to understand various pricing strategies, and how these interplay with industry structure, local or national competition. The idea is to combine theory with relatively simple empirical models analyzing prices and competition in markets.

  We will visit several markets during the course.

  • Retailing has undergone significant changes in terms of digitalization, technology and the vertical and horizontal structure during the last decades. From smaller independent units to larger chains, from a fragmented independent wholesale sector to concentrated chain-owned distribution, from national - to partly international ownership, to mention some of the major trends.
  • Airline, hotel and transport markets are large users of dynamic pricing, where pricing strategies vary both over time and across markets.
  • Online markets have replaced more and more of the physical traditional brick-and mortar stores, and opened up for much more dynamic and individual pricing.

  The course aims to give the students a better understanding of the functioning and the strategic mechanisms that are important when analyzing pricing in various markets and sectors. We will for instance focus on factors important to decision making on pricing, and discuss how the various business models that coexist in a changing environment affect both firms and the sector at large. We will combine theory and empirics, using real data from various markets and provide the students with analytical tools that can be used analyzing these. The course will also introduce the students to key persons working in such markets through a number of guest lectures.

  A student that has taken this course should be able to start working in strategy- and analysis departments in several markets, like major retail chains, major transport companies, and consulting firms, having a skillset that includes a strategic understanding of pricing and competition and have obtained data analyst skills that can be used to handle datasets.

  Topics that will be covered include:

  • The retail sector at large, a sector that has undergone major changes, where new strategic pricing behavior has become the new norm
  • How the vertical structure of retailing affect market outcomes and e.g., how the role of new intermediators affects markets, and how competition and market structure has been affected by the movement from independent wholesalers to centralized distribution
  • How algorithmic pricing has changed both the possibilities and scope for pricing behavior: From Brick and Mortar to Amazon
  • How to understand price search and pricing obfuscation: Fast moving consumer goods

   

  • How local market differences affect pricing, how local market can be defined in retail industries, and how these affect pricing in markets as e.g., pharmacies
  • How new entry can affect local competition
  • How local and national market power in gasoline retailing creates price cycles and asymmetric price responses (Rockets and Feathers)
  • How cross border trade affects national markets
  • How pricing is affected by the business cycle
  • How price transparency affects prices and price strategies
  • How misguided rebate programs affect pricing, and indeed even have led to mergers and cartel behavior.

  Some of the sectors discussed more in detail during the course include e.g., grocery, ‘dollar stores’, pharmacies, gasoline, online retail, airlines and hotels.

• Learning outcome

  Upon completion of the course, the student can…

  Knowledge:

  • In-depth knowledge about several important sectors and markets and their functioning.
  • Be able to use economic theory to better understand pricing and market outcomes.
  • Be able to use market and sector data to estimate pricing, and competition effects.

  Skills:

  • Use economic modelling to understand pricing and market dynamic.
  • Analyze and evaluate data using statistical tools.
  • Formulate and estimate simple dynamic pricing models.
  • Formulate and estimate simple demand models.
  • Formulate and estimate competition models.

  General competence:

  • Understand how markets work and interpret these using economic theory and data.
  • Provide ethical justification for how to design and understand research on such markets.

• Teaching

  The major part of the teaching will take place in classes (15), but we also have three lab sessions during the course. There will be 2-3 guest lectures from key-industry people.

  The lectures will be given physically in the auditorium as often as possible. However, since two of the lecturers are not based in Bergen, some lectures will be given using Zoom.

  All teaching in labs will be in person.

• Recommended prerequisites

  The course will use simple Industrial Organization models and apply analytical tools like R and Python to analyze and evaluate data. The labs will be supervised by instructors that can help out using such statistical packages. The idea will be to build the methodological abilities needed during the course.

• Compulsory Activity

  Two mandatory assignments solved in groups (maximum three group members).

• Assessment

  One four-day home exam solved in groups (maximum three group members), start Day 1 at 09:00, deadline Day 4 at 14:00.

  The exam must be written in English. 

• Grading Scale

  A-F

• Computer tools

  We will use different statistical packages in class and in the labs, these will be instructed in.

• Literature

  Textbook and articles