product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

quality based competition profitability and variable costs we consider the impact of variable production costs on competitive behavior in a duopoly where manufacturers compete on quality and price in a two stage game in the pricing stage we make no assumptions regarding these costs other than that they are positive and increasing in quality and no assumptions about whether or not the market is covered in the quality stage we investigate a broad family of variable cost functions and show how the shape of these functions impacts equilibrium product positions profits and market coverage we find that seemingly slight changes to the cost function s curvature can produce dramatically different equilibrium outcomes including the degree of quality differentiation which competitor is more profitable the one offering higher or lower quality and the nature of the market itself covered or uncovered our model helps to predict and explain the diversity of outcomes we see in practice something the previous literature has been unable to do

market definition market power abstract market definition and market power are central features of competition law and practice but pose serious challenges on one hand market definition suffers decisive logical infirmities that render it infeasible unnecessary and counterproductive and the practice of stating market power requirements as market share threshold tests is incoherent as a matter of empirics and policy on the other hand market power is often probative of the desirability of liability yet the typically assumed functional relationship is unexplored and often implausible these latter deficiencies are addressed through a ground up analysis of the channels by which market power can be relevant it is important to explicitly and simultaneously consider both anticompetitive and procompetitive explanations for challenged practices and to attend to the magnitudes of the social consequences of correct and mistaken imposition of liability in order to identify the various ways and senses in which market power bears on optimal decision making

hotel room rate pricing strategy for market share in oligopolistic competition eight year longitudinal study of super deluxe hotels in seoul abstract this paper examines pricing strategies and business performances of super deluxe hotels in seoul to achieve this purpose empirical research is conducted on the basis of data from 1989 when the formation of the present product life cycle stage and the market structure began to 1996 through quick cluster and regression analysis a separation of the price competition between groups of hotels is identified by anova pricing strategies and market shares of selected leading hotels are compared as a longitudinal study the same research design is applied based on four two year periods the final part of the paper evaluates the results of the statistical analysis and discusses important findings and implications of the four two year periods respectively

minimum market share this paper analyzes a specific model of oligopolistic competition involving product differentiation marketing activities and economies of scale in production this model is consistent with sales response models which have been justified on theoretical and empirical bases it is shown that at a nash equilibrium each firm must have market share equal to zero or greater than a threshold value this result has implications for determination of minimum firm size the effectiveness of a low market share strategy entry barriers and the likelihood of concentration in an industry the paper explores these implications and relates them to various theories and hypotheses in industrial organization and strategic planning

chapter 4 competitive marketing strategies game theoretic models publisher summary this chapter reviews the key developments in the understanding of competitive marketing strategies product price advertising and distribution competition are all addressed while the emphasis is on models the chapter surveys the empirical literature as well there is a significant amount of empirical work to report but the ratio of theoretical to empirical work is nevertheless unpleasantly large much progress has been made in the last ten years or so in the study of competitive marketing strategies most of this chapter has been theoretical using simple models of firm and consumer behavior these models serve the function of demonstrating rigorously the existence of certain effects factors which need to be considered in analyzing real world competition

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

technical note existence and uniqueness of price equilibria in defender this note provides a formal proof that for the defender model with uniformly distributed tastes the nash price equilibria exist and for a given set of positions that they are unique we also show that the profit function is well behaved continuous and quasi concave and that the maximum occurs on the concave portion of the curve

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

imperfect information monopolistic competition and public policy introduction ever since the pioneering work of george stigler 1961 and the provocative survey by michael rothschild 1973 economists have recognized that general equilibrium models yield competitive equilibria only by making strong assumptions about the information available to market participants in response to this difficulty theorists in recent years have developed a family of search equilibrium models that presuppose homogeneity and the absence of price discrimination and which also assume that information acquisition costs are positive for at least a subset of buyers on the basis of these and other assumptions the models attempt to show how price dispersion equilibria can arise solely as a result of the strategies that firms and consumers pursue one author summarized the results if information is costly each small firm obtains market power so that the relevant market structure with imperfect information is not per ect competition but rather monopolistic competition steven salop 1976 p 240

legal uncertainty as a welfare enhancing screen consider legal uncertainty as uncertainty about the legality of a specific action in particular suppose that the threshold of legality is uncertain i show that this legal uncertainty raises welfare legal uncertainty changes deterrence in opposite directions the probability of conviction increases for firms below the threshold while the probability of conviction decreases for firms above the threshold hence legal uncertainty acts as a welfare enhancing screen and increases welfare legal uncertainty discourages some actions with low private benefits while it encourages other actions with high private benefits

optimal proof burdens deterrence and the chilling of desirable behavior determination of the stringency of the burden of proof is a central design question in any system of adjudication including in many private settings employee promotion and firing product launches prior work oriented towards ex ante behavior focuses on deterrence using models in which individuals decide whether or not to commit a harmful act versus abstention or perhaps instead commission of a less harmful act such as when greater precaution is taken 1 in this setting the optimal proof burden maximizes deterrence which involves maximizing the difference between the ex ante likelihoods of correct and incorrect imposition of sanctions section i briefly derives this result and shows how contrary to some suggestions it differs from the familiar preponderance of the evidence rule under which sanctions are applied if and only if it is more likely than not that the individual before the tribunal committed the harmful act such analysis however omits a central concern with the mistaken imposition of sanctions that the prospect of such error will chill desir able behavior in competition law efficient procompetitive behavior e g promotional pricing may be discouraged with securities regulation the cost of capital may be raised if honest ipos often lead to successful class action suits under tort law health care providers might avoid treatment of high risk patients for fear of erroneous malpractice liability this dimension of the problem seems widespread and is likely to be

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

moral hazard and merit rating over time an analysis of optimal intertemporal wage structures a fundamental problem that has been the focus of much work in agency theory has been the design of contracts to provide insurance to risk averse agents and to elicit appropriate levels of effort in the context of insurance the problem is viewed as one of moral hazard whereby the insured agent will reduce the level of his precautions to prevent an accident if he is insured against the adverse outcome in the labor market context the problem is one of providing effective work incentives while at the same time promoting the risk sharing element of contracts the overall structure of the analyses is quite similar whether or not the focus is on the insurance market the labor market or principal agent problems in general for concreteness this paper addresses the labor market incentives problem the labor market problem is complicated by the firm s inability to observe the worker s ability and effort and also by stochastic elements that impede a firm s attempts to make more indirect inferences using output to assess the worker s productivity related efforts this combination of uncertainty and the need to create incentives takes on added importance in the case of workers who are risk averse the presence of risk aversion often mitigates the emphasis the firm can place on incentive creation as there is a desire on the part of workers to have stable income streams complete equalization of one s income level across states to promote insurance will however remove the differential rewards needed to provide an incentive for individuals to expend effort this inevitable tradeoff between the work incentive and insurance function of contracts has been studied in detail for single period contracts the focus of my analysis here will be on how these influences affect the multi peiiod wage structure although there has been research on the multi period incentives problem2 and on the role of moral hazard in multiperiod contexts 3 there is no literature on the optimal design of a merit rating system over

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

modeling asymmetric competition the effects of the marketing actions of one brand can be distributed among its competitors market shares in a complex manner this paper presents and illustrates methods for modeling brand competition and brand strategies in markets where competitive effects can be differentially and asymmetrically distributed we discuss the empirical specification parameter estimation and competitive strategy implications of the models proposed price and advertising competition among eleven brands of an australian household product is used to illustrate the application of these procedures

the excess sensitivity of layoffs and quits to demand excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements the specific nature of worker firm relations creates a situat

a representative consumer theory of the logit model the log it model is usually derived from a discrete choice approach with stoc hastic utilities it is shown here that the logit demand system may also be derived from the maximization of a deterministic entropy type utility the latter may be interpreted as the preference function of a representative consumer with variety seeking behavior this altern ative view suggests a generalization of the standard logit which allo ws total demand to be determined endogenously copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on credible delegation by oligopolists a discussion of distribution channel management several papers in the recent marketing literature have suggested that delegation in distribution e g the use of independent middlemen helps manufacturers to precommit strategically to profit enhancing competitive actions further the literature suggests that the profitability of such actions depends on market structure we challenge these conclusions here this is done in two steps first we perform an analysis of the entire class of models which have been used in the literature using internally consistent assumptions about market structure and contracting the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation obviously this is not what we see in the real world next we relax a key hidden assumption namely that all intra channel agreements are observable to competitors without this assumption the usual results unravel unless channel members can offer credible guarantees that unobservable agreements do not exist the strategic effects of delegation disappear since these guarantees are virtually impossible to maintain credibly we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability we conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels and make some suggestions about promising avenues for future theory research in channel structure

product line rivalry and market segmentation with an application to automobile optional engine pricing this paper addresses the questions whether and when the pricing practices on base products may differ from those of premium products sold with options or add ons various alternative models are considered a monopoly model a model of brand rivalry with full consumer information and a model of rivalry in which consumers are only well informed about base product prices only the brand rivalry model with limited consumer information predicts that premium products have larger percentage markups than base products provided that brand rivalry is sufficiently intense empirical evidence on base and premium product pricing in the automobile market is consistent with the limited information model and inconsistent with the other two models

bricks and mortar vs clicks and mortar an equilibrium analysis abstract the internet has provided traditional retailers a new means with which to serve customers consequently many bricks and mortar retailers have transformed to clicks and mortar by incorporating internet sales examples of companies making such a transition include best buy wal mart barnes noble etc despite the increasing prevalence of this practice several fundamental questions remain 1 does it pay off to go online 2 which is the equilibrium industry structure 3 what is the implication of this business model for consumers we study these issues in an oligopoly setting and show that clicks and mortar arises as the equilibrium channel structure however we find that this equilibrium does not necessarily imply higher profits for the firms in some cases rather it emerges as a strategic necessity consumers are generally better off with clicks and mortar retailers if firms align with pure e tailers to reach the online market we show that a prisoner s dilemma type equilibrium may arise

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

bargaining under incomplete information this paper presents and analyzes a bargaining model of bilateral monopoly under uncertainty under the bargaining rule proposed the buyer and the seller each submit sealed offers that determine whether the good in question is sold and the transfer price the nash equilibrium solution of this bargaining game implies an offer strategy of each party that is monotonic in its own reservation price and depends on its assessment of the opponent s reservation price issues of relative bargaining advantage and efficiency are examined for a number of special cases finally we discuss the appropriateness of the nash solution concept

robust equilibria in location games in the framework of spatial competition two or more players strategically choose a location in order to attract consumers it is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations to investigate the necessity of this questionable and restrictive assumption we model heterogeneity in consumers distance perceptions by individual edge lengths of a given graph a profile of location choices is called a robust equilibrium if it is a nash equilibrium in several games which differ only by the consumers perceptions of distances for a finite number of players and any distribution of consumers we provide a full characterization of all robust equilibria and derive structural conditions for their existence furthermore we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena thereby we find strong support for an old conjecture that in equilibrium firms form local clusters

on the generalizability of advertising pulsation monopoly results to an oligopoly this paper introduces for the first time an analytical framework for modeling and analyzing sales response to advertising pulsation for competitive markets of mature products in continuous time for discrete piecewise policies that allow unequal cycle lengths employing a nash equilibrium solution concept this study supported with numerical analysis demonstrates that there is an oligopolistic as opposed to a monopolistic justification for advertising at a constant rate in the presence of concave response functions or advertising according to a pulsing policy in the presence of s shaped response functions the article employs a modeling framework whereby each of a set of competitors responses to advertising spending is governed mainly by lanchester type response is used to analyze the game resulting from cyclical advertising policies that are strictly adhered to by all players a non discounted averaged performance is used to assess the purported optimality of different variants of piecewise constant policies

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

capital as a commitment strategic investment to deter mobility abstract this paper analyzes how an early entrant in a market can exploit its head start by strategic investment the analysis is based on spence s paper investment strategy and growth in a new market bell j econ 10 1979 1 19 we frist study the investment game in the no discounting case which embodies the key features of mobility deterrence we establish the existence of a set of perfect equilibria and suggest that one particular equilibrium is most reasonable this equilibrium also valid with discounting involves the follower firm being forever deterred from investing to its steady state reaction curve in contrast to spence s proposed solution

product and price competition in a two dimensional vertical differentiation model in this paper the one dimensional vertical differentiation model shaked and sutton shaked a j sutton 1982 relaxing price competition through product differentiation rev econom stud 49 3 13 moorthy moorthy k s 1988 product and price competition in a duopoly marketing sci 7spring 141 168 is extended to two dimensions and an analysis of product and price competition is presented a two stage game theoretic analysis in which two firms compete first on product positions and then on price is conducted closed form equilibrium solutions are obtained for each stage in which competitors are unrestricted in their choices of price or product positions a significant finding of this research is that unlike the one dimensional vertical differentiation model firms do not tend towards maximum differentiation although this solution is possible under certain conditions when the range of positioning options on each of the dimensions is equal maxmin product differentiation occurs that is in equilibrium the two firms tend to choose positions which will represent maximum differentiation on one dimension and minimum differentiation on the other dimension

a model of optimal fines for repeat offenders abstract this paper analyzes optimal fines in a model in which individuals can commit up to two offenses the fine for the second offense is allowed to differ from the fine for the first offense there are four natural cases in the model defined by assumptions about the gains to individuals from committing the offense in the case fully analyzed it may be optimal to punish repeat offenders more severely than first time offenders in another case it may be optimal to impose less severe penalties on repeat offenders and in the two remaining cases the optimal penalty does not change

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

gray marketing as an alternative market penetration strategy for entrepreneurs conceptual model and case evidence abstract gray marketing is said to occur when authentic branded products reach the consumer through marketing channels other than that of the authorized distributor weigand 1991 free riding was first offered by tan et al 1995 tan et al 1997 as an alternative explanation for the occurrence of gray marketing we extend the authors work to show that free riding can be an alternative strategy to niching for entrepreneurs contemplating entry into established markets almost exclusively the existing literature on gray marketing treats the phenomenon as a pricing problem and fails to recognize it as a market entry opportunity for start up entrepreneurs the gray marketing strategy is appropriate for start up entrepreneurs in view of their resource limitations and the risk of being a first mover in market development we show in this paper that an entrepreneur can successfully penetrate an established market by following a gray marketing strategy this is because it can be optimal for the incumbent supplier to accommodate the entrepreneur gray marketer even if the former could force the latter out of the market through aggressive counter actions we developed a conceptual model using game theoretic concepts to aid entrepreneurs in understanding the strategic interactions amongst parties involved in gray marketing and to identify the conditions under which entrepreneurs can successfully penetrate a market via gray marketing the deductive or game theoretic approach we feel is most appropriate because gray marketing involves multiple party interactions and conflicts of interests as moorthy 1985 showed the game theoretic methodology is most suited to analyzing the behavior of market participants in such a situation this paper identifies the conditions under which gray marketing would be profitable and sustainable for entrepreneurs first by targeting markets that are already well established by the larger firms the entrepreneurs risk of failure due to demand uncertainty is reduced in addition they need not incur substantial costs for market developmental efforts furthermore the free riding strategy provides entrepreneurs with the opportunity to enter profitable markets that are currently supplied by larger firms instead of being restricted to markets ignored or disdained by the latter second entrepreneurs are able to benefit from the second mover advantages in following the free riding strategy as late entrants into the market entrepreneurs could learn from the experiences of the larger firms and avoid costly mistakes by imitating the product strategy of the larger firm entrepreneurs could also achieve cost savings in r d and product development costs all these effectively reduce the entrepreneur s cost of entry into the market hence even with limited resource at their disposal entrepreneurs could still enter the market successfully finally by following the free riding strategy entrepreneurs are able to nibble at the market shares of the larger firms this is possible because of the difficulties and costs faced by the larger firms in countering entries made by the entrepreneurs thus the larger firms are left with little choice but to accommodate the entry of the entrepreneurs into the market when the costs of countering the entrepreneurs entry are sufficiently large the free riding strategy becomes feasible for entrepreneurs even if they do not posses competitive advantages over the larger firms our paper thus demonstrates that entrepreneurs do have an alternative market entry strategy besides the commonly prescribed niching strategy it also shows them when such a free riding strategy would be most beneficial and most likely to succeed these are further illustrated and supported through two real life cases involving companies in the luxury cars and cosmetics industries in singapore

bidding for contests the procurement of product development and production services brings special strategic considerations to the buyer seller relationship in industrial and institutional markets multiple sourcing in particular dual sourcing is a likely way of dealing with the increased risks faced by buyers however there is lack of dual sourcing models that analyze the selection and control process in an integrated fashion this omission had led to apparently contradictory findings in agency and auction theory the paper models the strategic issues for a cost containment contest between two suppliers the suppliers are drawn from several vendors who participate in a bidding competition the supplier with the lower final cost in the contest wins a larger share of the pooled profit fee propositions are derived for the optimal cost plus contest and comparisons are made with the common incentive contract for the integrated selection and control model the larger the winner s share the greater the effort the buyer can make a credible commitment to the optimal winner s share as the winner s share rises however the bid prices increase due to increased contract risk this incentive risk tradeoff determines a the optimal winner s share that minimizes expected procurement price b the corresponding profit fee bid by suppliers c the ensuing cost control effort and d the final price for the procurement comparisons with the common incentive contract tell us when the cost plus contest induces more effort and when bidding for a contest results in a lower final procurement price

early growth decisions of entrepreneurs the influence of competency and prior performance under changing market conditions the transition between the founding of firms and their first steps toward growth represents a critical juncture in the life cycle of new firms an experimental study was conducted among a sample of 103 owner operators of independent hardware stores in order to examine the effects of their competency and their store s prior performance on their decisions to grow their business under changing market conditions the results of the study indicate that prompt and vigorous actions to grow the business in response to market changes are more likely under the following conditions a high level of competence in the firm combined with poor prior performance a low level of competence in the firm combined with good prior performance these findings attest to the critical importance of competency building in new and small firms as competency appears to facilitate responsive behavior to changing market conditions when the firm s performance has not been favorable such competencies may go beyond technical competencies and may include the ability of firms to build relationships with current and prospective customers which may help the firm anticipate and better understand customer needs the results also indicate that the folklore about the vigorous responsiveness of entrepreneurs across all kinds of situations and in the face of all sorts of adversity may be misplaced or inaccurate the varying patterns of responsiveness found in our study should provide food for thought particularly for entrepreneurs who are fortunate to find themselves in positions in which the firm s competencies are high and its prior performance good under such circumstances our results show that a fat cat syndrome is likely to set in and undermine the responsiveness of the firm to changing market conditions for public policy makers our results suggest that programs which support competence building among entrepreneurs whose firms are struggling may play an important role in assisting them to respond to the changes they so frequently face in today s markets such programs which may enhance survival rates of firms already in existence as well as encourage them to grow may aid in job creation and in maintaining a robust economic environment

prices as signals of product quality this paper is concerned with the provision of quality in markets in which consumers have only imperfect information the analysis focuses on a market for a product that can be produced at different quality levels all consumers prefer higher to lower quality but they may differ in their willingness to pay for quality producers can produce any quality they like but higher qualities are more costly to produce the information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself some information about the quality of a firm s product will however reach its potential customers even if they do not make any special effort to acquire it within the framework suggested here two conclusions are drawn first prices may serve as signals which exactly differentiate the available quality levels that is there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level second the pricesignals are not arbitrary each price signal exceeds the marginal cost of producing the quality it signals such a mark up depends on the nature of the product specific information received by consumers the poorer the information the higher the mark up

gaining more by stocking less a competitive analysis of product availability the price competition between two firms can affect their decisions about product availability with occasional stockouts a firm loses from foregone sales yet it may indirectly benefit from the higher price a competitor is able to charge the more prone customers are to search elsewhere for the product upon encountering a stockout the greater is the gain from the reduced price competition between firms this paper establishes conditions whereby the strategic interaction of reduced price competition between firms outweighs the loss from foregone sales in such cases a firm can increase its expected profits by choosing to stock less these results provide a competitive rationale for the high stockout levels observed in some retail situations and have implications for the analysis of product availability in public policy settings

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

research note on the profitability of firms in a differentiated industry in a model of vertical differentiation the principal concern of this paper is to identify sufficient conditions for producing a higher or lower quality good to be more profitable in terms of profits and profit margin our basic model considers a short run scenario where the firms quality levels are fixed and they engage in price competition here our results are three first we develop the notion of relative cost efficiency and show that its increasing or decreasing monotonicity in product quality implies that of firm profitability in equilibrium a firm s relative cost efficiency refers to its quality adjusted cost dis advantage relative to its immediate competitors for a given distribution of consumer tastes second selling a higher quality good is more profitable when absolute cost efficiency defined as the ratio between a firm s quality and unit cost is increasing in quality third we also establish a set of lower and upper bounds on each firm s profitability the basic model is then extended in two directions we examine unit cost functions that demonstrate monotone profitability even when both quality and price are endogenous variables we also show that the spirit of relative cost efficiency and its associated sufficient condition hold valid for a logconcave consumer distribution

cournot competition in a differentiated oligopoly abstract this paper studies product quantity equilibria in an oligopoly products are interpreted as qualities and each firm chooses a quality quantity pair simultaneously it is well known that a pure strategy equilibrium in product price pairs does not exist in this model but a pure strategy equilibrium in product quantity pairs exists furthermore in an example widely studied in the literature the equilibrium has nice asymptotic properties

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

the impact of competitive entry in a developing market upon dynamic pricing strategies this paper analyzes dynamic pricing strategies for new durable goods in a two period context the first period is characterized as a monopoly market structure for a new product having dynamic demand the second period begins when a new firm enters the market and thereby changes the market structure to a duopolistic one we begin by analyzing the pricing strategies of three types of monopolists nonmyopic myopic and surprised a nonmyopic monopolist is a first entrant who perfectly predicts the competitive entry a myopic monopolist totally discounts the duopolistic period and a surprised monopolist is a first entrant who has the longer time horizon of the nonmyopic monopolist but who does not foresee the competitive entry our results indicate that the nature of these pricing strategies may be quite different it is optimal for the nonmyopic firm to price its product at a higher level than the myopic monopolist additional results indicate under what circumstances the surprised monopolist will p

consumer heterogeneity and strategic quality decisions though recent studies show that quality differentiation is an equilibrium outcome products of similar qualities frequently are observed in the marketplace this inconsistency may be explained by incorporating consumer heterogeneity along unobservable attributes into a model of competition in this paper consumers not only take into account the quality and price of a product but also their heterogeneous tastes along other attributes which are unobservable to firms we investigate the effect of heterogeneity along the unobservable attributes on both quality and price equilibrium in a two stage game framework we show that when consumers are sufficiently heterogeneous along the unobservable attributes the firms offer products of identical qualities in equilibrium under low levels of heterogeneity along the unobservable attributes however our results are consistent with past research which argues for quality differentiation

pure strategy nash equilibria in an advertising game with interference abstract two manufacturers produce substitutable goods for a homogeneous market the advertising efforts of the two manufacturers determine the demand for the goods and interfere negatively with each other the demand of each good is a piecewise linear function of the product goodwill and the latter is a linear function of advertising efforts in a game with two competing profit maximizing manufacturers who have access to a set of several advertising media the pure strategy nash equilibria are characterized and their existence is shown

pricing and rebate strategies for an e shop with a cashback website abstract a cashback website cw is a type of reward website that pays its members a rebate when they purchase goods via affiliate links the website receives a commission from an e shop when a customer makes a purchase by following a link instead of visiting the e shop directly with the rapid rise in e shops cws are becoming increasingly popular however these cws value to e shops is still somewhat unclear in both theory and practice to clarify the process we consider a system in which an e shop sells a product to consumers and a cw provides the link to the e shop based on consumers utility we develop a model to study the value of the cw to the e shop in both centralized and decentralized settings and demonstrate and compare the two parties optimal strategies and their corresponding profits in both settings our main findings are as follows 1 the cw can always bring the e shop more profits whether the setting is centralized or decentralized by playing the role of price discrimination 2 in contrast to the centralized setting the decentralized setting does not lead to a higher sales price in many cases it offers a lower sales price which is opposite of the case typically seen in traditional supply chain literature 3 compared with the decentralized setting the centralized setting does not allow all consumers to have more consumer surplus which again differs from traditional supply chain literature but rather yields more total profit to the system which implies that it is better for the e shop to have its own cw than to use a third party cw 4 the degree of decrease in utility for consumers who buy via the cw significantly influences both parties pricing strategies more interesting is that a smaller degree of decrease in utility for consumers who buy via the cw is always beneficial to the e shop but may be detrimental to the cw

defensive marketing strategies an equilibrium analysis based on decoupled response function models the entry of a new product attacker into a competitive market is likely to provoke responses from some or all of the existing products defenders this paper investigates the development of optimal defensive strategies based on an understanding of the possible reactions of all the defenders to an optimal attack following lane lane w j 1980 product differentiation in a market with endogenous sequential entry bell j econom 11 1 spring 237 260 we assume that n products each enter sequentially with perfect foresight on subsequent entry then based on new technology an unanticipated attacker enters the n defenders respond in price but not position according to lane s model once this equilibrium is obtained advertising and distribution response functions scale sales we show that under these decoupled response function models of advertising and distribution uniformly distributed tastes and nonincreasing market size the optimal defense for all existing brands is to decrease their respecti

endogeneity and individual consumer choice abstract in many markets there is likely to be correlation both across periods in terms of the choices of one consumer and across consumers in terms of their choices in each period the former is caused by consumer heterogeneity and the latter may be the result of demand common shocks across consumers furthermore if firms partially observe these common shocks their market decisions may end up being endogenous and correlated with the common shocks because researchers cannot typically fully observe consumer heterogeneity and the common shocks the estimation method must account for the endogeneity of firms decisions in this article the authors present a test for endogeneity under unobserved consumer heterogeneity and common shocks which is based on a quasi likelihood estimation method to estimate the model parameters consistently when endogenous firm behavior unobserved heterogeneity and common shocks are present the test examines the differences in general method of moments coefficient estima

green product design in supply chains under competition abstract in this paper we investigate the green product design issues in supply chains under competition our research questions address how supply chains decisions on the greenness of products are affected by factors such as supply chain structures centralized and decentralized the green product types development intensive product or marginal cost intensive product and the types of competition price competition and greenness competition with a game theoretic approach our model starts with a simple supply chain with one manufacturer and one retailer then the model is expanded to include a horizontal retailer competition case and six cases of competing supply chains our results indicate that 1 the distortion from a non coordinated supply chain the double marginalization effect has counter intuitive impact on the degree of product greenness 2 supply chain price competition at the retailer level may positively influence the equilibrium greenness while the product greenness competition reduces the equilibrium greenness and the joint impact from price and greenness competition on equilibrium greenness depends on the relative strength of the two types of competition

practical implications of game theoretic models of r and d the purpose of this paper is to survey recent game theoretic models of research and development and to ask whether they yield practical implications or testable hypotheses the papers i will be discussing have been written or published within the past five years they have a good deal in common relying upon similar assumptions and building upon each other because of this the literature surveyed here may seem narrow and some relevant work has probably been inadvertently omitted i apologize for these omissions for want of space i will not discuss the normative conclusions of this literature

pricing and promotions in asymmetric duopolies this paper develops a modeling framework for making promotions decisions in contrast to some of the prior research the framework explicitly models promotions its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first followed by the choice of promotion depths and frequencies it is used to illustrate the nature of competition between a national brand and private label in equilibrium the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand moreover the private label does not promote this equilibrium is also contrasted with varian s framework used by other researchers in which mixed strategy equilibrium prices are interpreted as promotions

demand for differentiated products discrete choice models and the characteristics approach we propose a specific characteristics framework in order to construct linkages between alternative conceptual approaches to modelling product differentiation first it is shown that a demand system which satisfies the gross substitutes property imposes specific requirements on the locations of products in particular the dimension of the characteristics space must be larger than or equal to the number of products minus one we then identify a method for casting a given demand system subject to certain restrictions into our characteristics framework this is illustrated for the logit probit and linear probability models of discrete choice theory finally we find a characteristics representation of the ces representative consumer

on existence of location equilibria in the 3 firm hotelling problem it is well known that the hotelling model of spatial competition with three firms admits no equilibrium solution see chamberlin 1933 and lerner and singer 1937 apparently this non existence result is associated with the assumption that customers patronize the nearest firm now empirical evidence supports the idea that consumers do not necessarily choose to buy from the closest firm since they also take variables other than distance into account as these variables are often unobservable firms cease to be fully informed about consumers motivations consequently they can at best determine the shopping behavior of a particular customer up to a probability distribution the purpose of this note is to reconsider the 3 firm hotelling problem within a probabilistic framework it is shown that two different types of equilibria emerge centrally agglomerated equilibria in which the three firms are clustered and symmetric dispersed equilibria in which the three firms have distinct locations these equilibria are compared to the socially optimal locations

sequential bargaining with incomplete information this paper describes a simple two person two period bargaining game and solves it using the concept of perfect bayesian equilibrium in which the actions of each player convey information which is used by his opponent the paper examines the effects of changes in bargaining costs the size of the contract zone and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions the combination of information transfer and the lack of pre commitment embodied in perfectness yields many surprising results common perceptions about the effects of parameter changes on bargaining processes are suspect and should be checked in the particular game being discussed

perceptual position and competitive brand strategy in a two dimensional two brand market brand positioning and competitive reaction are important determinants of optimal brand strategy analyses of brand strategy have focused on optimal pricing and positioning issues using either empirical models of perceptions and preferences game theory to examine competition or both however the important issues of advertising and distribution strategy have not been fully addressed this paper analyzes competition and strategy between two brands that compete in a two dimensional market with advertising and distribution spending in addition to prices and product positions in particular for a unimodal taste distribution of ideal points we show how optimal competitive nash equilibrium marketing mix levels and profits depend on the positions of both brands brands can reposition to increase profit and under what conditions these strategies imply minimum versus maximum differentiation positioning equilibria and how the intensity of advertising and distribution competition affect equilibrium brand positions

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

competition strategy and price dynamics a theoretical and empirical investigation the authors explore how competition affects dynamic pricing of new products dynamics of diffusion saturation and cost reduction due to experience are all considered with emphasis on the last t

analysis of a multi period pricing problem abstract we consider the pricing decision of a firm over a planning horizon t in a market with a finite potential population m new consumers enter the market every period according to a diffusion process consumers differ in their willingness to pay and form expectations about future prices the credible prices in this system have to be recursively over time profit maximizing prices or subgame perfect equilibrium prices the problem of determining the perfect equilibrium prices is equivalent to the problem of determining a price path in a network of consumer states that satisfies a set of subgame properties the problem of determining the exact subgame perfect prices involves a state space that expands exponentially in the planning horizon t we present an aggregation procedure that generates approximate price paths that satisfy the subgame properties in an aggregated state space we provide computational results for the constant rate of entry and diffusion of customers to the system that justify our claim that the procedures are fast and provide good approximations to the actual subgame perfect prices in the system

game theory and empirical generalizations concerning competitive promotions this paper offers the generalization that competitive promotions are mixed strategies first an empirical regularity is established that promotions are independent across competitors this regularity is then elaborated on in the context of a promotion game the promotion game is linked to observable outcomes and a classification of possible situations is developed in particular the classification includes the prisoners dilemma battle of the sexes and marketing models of promotion competition the evidence for the generalization comes from a variety of product markets spanning trade promotions retail price reductions and retail promotions such as advertised specials the product markets include coffee baby diapers toilet tissue saltines dishwashing fluid ketchup and detergents among others the data in some cases were from cooperating grocery chains and in others from iri scanner panels the evidence from extant research and from new analyses is presented each situation is identified as be

empirical analysis of closed loop duopoly advertising strategies closed loop perfect equilibria in a lanchester duopoly differential game of advertising competition are used as the basis for empirical investigation two systems of simultaneous nonlinear equations are formed one from a general lanchester model and one from a constrained model two empirical applications are conducted in one involving coca cola and pepsi cola a formal statistical testing procedure is used to detect whether closed loop equilibrium advertising strategies are used by the competitors rather than open loop strategies in the second application involving anheuser busch and miller the general model is estimated results indicate that closed loop equilibria better explain dynamic advertising competition than do open loop equilibria also closed loop equilibrium advertising strategies implied by model estimates show that competitive advertising levels may or may not be monotonic in market share