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Hai Che, New Marketing Professor, Sheds Light on Consumer Choice and Firm Pricing

Ever clipped a coupon for your breakfast cereal? Probably not. As Assistant Professor Hai Che will confirm, even when cereal prices were high, consumers would not reach for a different box of breakfast cereal just because it was a few cents cheaper. But did cereal manufacturers realize this and adjust their prices?

These are the kinds of questions the newly minted assistant professor of marketing is addressing in his research. He joined Haas this fall from the Olin School of Business at Washington University in St Louis, where he pursued a Ph.D. in marketing.

The pricing of ready-to-eat breakfast cereals has raised many questions, including at the Federal Trade Commission (FTC). In the 1980s and early 1990s, consumers kept complaining about the high prices in the cereal market. If consumers were price-sensitive, it was believed, cereal manufacturers should be charging lower prices in order to compete for market shares. Since they were not, they were accused of collusive pricing and became subject to an FTC investigation.

In trying to determine whether cereal consumers really are price sensitive or not, Che found that segmenting cereal consumers into groups based on their purchase behavior - whether they stay with their familiar brand or seek variety -- provided a more accurate picture and showed that consumers are less price sensitive than assumed.

It follows that the stronger consumers' loyalty to their purchase behavior, the more cereal manufacturers could raise prices without worrying about losing consumers, even when competing for market shares.

Che then studied the nature of marketers' pricing behavior and strategic interaction. He learned that when ignoring the different kinds of consumer behavior, market data suggests that cereal manufacturers collude to raise prices. However, when taking consumers' loyalty to their purchase behavior into account, the pricing appeared to be competitive, rather than collusive.

For his research, Che draws heavily on his training in economics. Originally from China, he studied finance at Fudan University in Shanghai and did research on how to make the Chinese currency convertible during the economic reform in 1992. After arriving at the Department of Economics at the University of Toronto on a scholarship, he became more interested in industrial organization and decided to apply his training in game theory and econometrics to pursue answers to elusive marketing problems.

"The change worked out well," says Che, referring to the switch from finance to marketing, because it paved his way to Berkeley. "The marketing group at Haas is one of the best in the world. Each professor is one of the best in his or her field, and they are all really active researchers."

This fall, he will start new research projects and prepare to teach the undergraduate marketing core course in spring. In addition his colleagues, Che appreciates the pleasant weather of the Bay Area and the fact that he can walk to restaurants, shops, and bookstores. He is a big movie fan, and if you discover a good jazz club in the area, he'd like to hear from you.

He can be reached at cheh@haas.berkeley.edu or at (510) 643-8918. His office is located in F696.

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Hai Che
Hai Che