Experimental Markets for Product Concepts Paper 149

Market prices are well known to efficiently collect and aggregate diverse information regarding the value of commodities and assets. The role of markets has been particularly suitable to pricing financial securities. This article provides an alternative application of the pricing mechanism to marketing research using pseudo-securities markets to measure preferences over new product concepts. Surveys, focus groups, concept tests and conjoint studies are methods traditionally used to measure individual and aggregate preferences. Unfortunately, these methods can be biased, costly and time-consuming to conduct. The present research is motivated by the desire to efficiently measure preferences and more accurately predict new product success, based on the efficiency and incentive-compatibility of security trading markets. The article describes a novel market research method, provides insight into why the method should work, and compares the results of several trading experiments against other methodologies such as concept testing and conjoint analysis. This report describes research done within the Center for Biological and Computational Learning in the Department of Brain and Cognitive Sciences and in the Artificial Intelligence Laboratory at the Massachusetts Institute of Technology. This research was sponsored by grants from: Office of Naval Research under contract No. N00014-93-1-3085, Office of Naval Research (DARPA) under contract No. N00014-00-1-0907, National Science Foundation (ITR) under contract No. IIS-0085836, National Science Foundation (KDI) under contract No. DMS-9872936, and National Science Foundation under contract No. IIS-9800032 This research was partially funded by the Center for e-Business (MIT). Additional support was provided by: Central Research Institute of Electric Power Industry, Eastman Kodak Company, DaimlerChrysler AG, Compaq, Honda R&D Co., Ltd., Komatsu Ltd., Merrill-Lynch, NEC Fund, Nippon Telegraph & Telephone, Siemens Corporate Research, Inc., and The Whitaker Foundation.