COMPARING NAIVE WITH ECONOMETRIC MARKET SHARE MODELS WHEN COMPETITORSACTIONS ARE FORECAST

While econometric market share models have been shown to be useful to managers as descriptive tools, controversy exists over their use in fo recasting. As a result, a criterion as been developed which can be use d to assess whether or not a naive model will outperform an econometri c model for market share forecasting. However, this criterion ignored the effects of having to forecast competitors' actions, as would be de manded in a real-life market share forecasting application. In this pa per previous results by the author are extended to cover the situation where competitors' actions must also be forecast. The results show th at having to forecast competitors' actions is very demanding for econo metric models. Consequently, the naive model is likely to be preferred in most market share forecasting situations where competitors, action s are forecast. Econometric models will be preferred only when they fi t the data extremely well for all brands in the market.