buyer initiated vs seller initiated information revelation sales presentations are the core of the selling process where salespeople provide information to prospects one challenge is that the amount of information available to be potentially communicated may exceed salespeople s ability to communicate or customers ability to process there is limited bandwidth between the firm and customers one important decision then is which information should customers see what the firm chooses to tell customers may be informative in itself when constrained to a seller initiated information revelation format where the firm chooses which feature to show the firm never finds it optimal to offer more features than it is able to inform customers about consequently customers never find credible a claim that the product has all features the important implication is that price alone cannot serve as a signal of quality in this setting in contrast a buyer initiated information revelation format where customers decide which information to receive increases the probability of a sale and also results in the production of higher quality products in a competitive setting by adopting buyer initiated information revelation firms are able to attain positive profits this is due to the fact that customers infer the product s quality from the price along with the information revelation format customers know that at some prices firms find it profitable to produce high quality products and at other lower prices this is not the case thus customer empowerment leads to higher profits

the hidden information content of price movements dynamic patterns of prices in different markets may motivate strategic consumers who could be monitoring price movements over time to game vendors do past price movements carry information about the probability and magnitude of future price drops conducting empirical work in the airline industry on near 1000 us domestic routes we find that some price metrics carry information about future price swings these variables can assist in predicting the likelihood and magnitude of price drops these price metrics yield significantly different signals which also vary as the prediction horizon changes

price promotions cause impatience in this research the authors propose that incidental exposure to price promotions can cause downstream impatience in an unrelated domain specifically price promotions trigger reward seeking a ge

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

storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture

market structure and the value of overselling under stochastic demands in the operations management literature traditional revenue management focused on pricing and capacity allocation strategies in a two period model with stochastic demand inspired by travel and lodging industries we examine a two period model in which each seller may also adopt the overselling strategy to customers whose valuations are differentiated by timing of arrivals widely seen as a popular hedge against consumers skipping reservations we extend the stylized approaches of biyalogorsky carmon fruchter and gerstner 1999 and lim 2009 to understand the value of overselling under various market structures we find that contrary to existing literature the impact of period two pricing competition from overselling spills over to period one such that overselling may not always be a weakly dominant strategy once unlimited early demand ceases to hold in a duopoly regime we provide some numerical studies on the existence of multiple equilibria at the capacity allocation level which actually lead to different selling strategies at the equilibrium despite identical market conditions and firm characteristics

a model of how discounting high priced brands affects the sales of low priced brands drawing on a consumer preference distribution structure postulated in analytical modeling research the author develops a separate effects model that separates the total discount effect of a compet

theory and evidence on pricing by asymmetric oligopolies we present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good such as software music book or a brand name appliance we show that two forms of asymmetry one related to loyal segment sizes of retailers and one related to the positioning of firms completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers the stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers

sulfur dioxide so2 emissions and government spending on environmental protection in china evidence from spatial econometric analysis abstract this study pays attention to a rarely discussed but important issue regarding the influence of the government s environmental protection expenditure on sulfur dioxide so2 emissions in china under consideration of the potentially spatial dependence of so2 emissions a panel dataset of 30 provinces from 2008 to 2013 is utilized to estimate the panel spatial durbin models the main findings of this study are that so2 emissions can be effectively reduced by government spending on environmental protection and that the relationship between so2 emissions and gross regional product grp per capita in china is cubic polynomial n shaped in addition as direct investment from foreign countries toward china increases so2 emissions will be reduced the trade factor also plays an important and negative role in so2 emissions provinces with higher shares of secondary industries to total grp will have more so2 emissions the investment completed in the treatment of industrial pollution in the private sector can effectively reduce so2 emissions and a higher population density causes a reduction in so2 emissions the coefficient of spatial autocorrelation is statistically positive confirming a positive spatial correlation also meaning a spatial competition of so2 emissions among provinces in china all these conclusions are consistent with those in previous works and with our expectations and remain the same while a two stage procedure is applied to cope with the potential endogeneity problem of grp with the exception of the effect of population density

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

prominence complexity and pricing this paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels complexity limits competing offers comparability and results in consumer confusion confused consumers are more likely to buy from the prominent firm in equilibrium there is dispersion in both prices and price complexity the nature of equilibrium depends on prominence compared to its rival the prominent firm makes higher profit associates a smaller price range with lowest complexity puts lower probability on lowest complexity and sets a higher average price however higher prominence may benefit consumers and conditional on choosing lowest complexity the prominent firm s average price is lower which is consistent with confused consumers bias

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

research note additional learning and implications on the role of informative advertising observers argue that evidence for the persuasive role of advertising comes from competitive categories where increases in advertising lead to higher average prices conversely others claim that advertising serves a purely informational role here higher levels of advertising lead to better informed consumers and this should increase competition and stimulate lower prices the objective of this study is to neither confirm nor refute either of these perspectives it is rather to show that increases in informative advertisingalone can lead to both higher or lower prices i further show that the direction of this relationship depends on the level of differentiation between competing firms similar to grossman and shapiro 1984 i examine conditions where the differences between competing products are small but i also examine conditions where the differences are significant the role of advertising is to inform consumers about individual products and higher advertising for a product means that more of the potential market knows about it higher levels of advertising increase the relative importance of fully informed consumers compared to partially informed consumers this dynamic is the basis for explaining why informative advertising can push prices either up or down in a uniformly distributed spatial market

housing and relative risk aversion this paper derives closed form and numerical solutions for relative risk aversion in a standard consumption based model enriched with housing the presence of housing enables the household to hedge against unexpected shocks and may decrease relative risk aversion in addition housing may generate state dependent time varying risk aversion

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

empirical analysis of competitive product line pricing decisions lead follow or move together researchers have recently developed models for determining which market conduct best describes observed data we apply these techniques from the new empirical industrial organization literature to the competitive product line pricing decision where a firm strategically prices its brands when determining the profit maximizing conduct in the market demand cost and market structure are estimated endogenously empirical results from analyzing price competition in the laundry detergent market between procter and gamble selling tide and eraplus and lever brothers offering wisk and surf indicate that each firm positions its strong brand as a stackelberg leader with the rival s minor brand being the follower

retailer price distributions and promotional activities abstract an interesting feature of the data is that the price distribution in the absence of promotional activities first order stochastically dominates that under display or feature advertising the theoretical model we introduce can yield an equilibrium that is consistent with the above observations

dynamic targeted pricing with strategic consumers abstract we investigate in this paper whether dynamic targeted pricing based on consumer purchase history could benefit a practicing firm even when consumers are strategic in that they actively seek to avail themselves of a low price in the future such strategic behavior on the part of consumers has been shown in the literature to render such dynamic targeted pricing unprofitable even for a monopoly firm we show that dynamic targeted pricing can benefit competing firms when they actively pursue customer recognition based on consumer purchase history this is because in order to pursue customer recognition competing firms need to price high to screen out price sensitive consumers and hence price competition is moderated as a result all competing firms can become better off with targeted pricing than without even when consumers behave strategically interestingly because of this competition moderation effect the paradoxical outcome occurs where dynamic targeted pricing may not benefit a monopolist but it may benefit competing firms we also show that dynamic targeted pricing can expand the market such that social welfare unambiguously improves

a supergame theoretic model with consumer loyalty abstract the paper shows in a supergame theoretic framework how the relative market power firms achieve by having loyal consumers hinders collusion furthermore increasing concentration decreases the sustainability of the agreement

price match announcements in a consumer search duopoly using a model of sequential search we show that announcements to price match raise prices by altering consumer search behavior first price matching diminishes firms incentives to lower prices to attract consumers who have no search costs second for consumers with positive search costs price matching lowers the marginal benefit of search inducing them to accept higher prices finally price matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium price increases grow in the proportion of consumers who invoke price matching guarantees and in the level of equilibrium asymmetry

intertemporal pricing and consumer stockpiling we study a dynamic pricing problem for a class of products with stable consumption patterns e g household items staple foods consumers may stock up the product at current prices for future consumption but they incur inventory holding costs we model this situation as a dynamic game over an infinite time horizon in each period the seller sets a price and each consumer chooses how many units to buy we develop a solution methodology based on rational expectations by endowing each player with beliefs we decouple the dynamic game into individual dynamic programs for each player we solve for the rational expectations equilibrium where all players make optimal dynamic decisions given correct beliefs about others behavior in equilibrium the seller may either charge a constant fixed price or offer periodic price promotions at predictable time intervals we show that promotions are useful when frequent shoppers are willing to pay more for the product than are occasional shoppers we also develop several model extensions to study the impact of consumer stockpiling on the seller s inventory production and rationing strategies

mixed strategy trade equilibria textabstractconsiders the hybrid situation where some customers care only about the price while others have a brand preference or care about product characteristics

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

hotelling s spatial competition as a model of sales abstract hotelling s spatial competition model is used to explain the existence of sales it is shown that 1 an equilibrium in randomized strategies exists when a pure strategy equilibrium fails to exist 2 with more dissimilarity among brands prices are chosen from a wider interval

consumer search with asymmetric price sampling we explore asymmetries in the way consumers sample prices in a simple sequential search framework in equilibrium the price distribution of a firm catering to more local consumers first order stochastically dominates that of its rival prices rise in the degree of asymmetry

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

why competition may drive up prices abstract we show that the expected price of an incumbent firm may increase in response to increasing competition as it may become more profitable to exploit a rather immobile fraction of consumers instead of capturing a larger but more contested segment of the market to derive this result we consider two approaches of modelling the degree of competition first in a duopolistic setting competition is said to be more intense if the entrant s product becomes more attractive to the mobile fraction of buyers in this case we find that all buyers i e both the mobile and the immobile fraction may lose if the market becomes more competitive secondly in a model with two entrants competition is said to become intense if entrants serve an overlapping segment of the market for mobile buyers

strategic loyalty reward in dynamic price discrimination in a dynamic model with overlapping generations of consumers we study duopolistic competition when firms can price discriminate at each period between their previous customers and the consumers that they have never served long term contracts are not enforceable in markov perfect equilibrium one firm charges higher prices to its past customers than to its new customers as past customers have revealed their strong preferences for the firm the other firm however rewards its previous customers by charging lower prices to them than to its new customers this loyalty reward strategy comes from the interplay between the firms usual incentive to extract surplus from consumers with revealed strong preferences and their incentives to acquire information and to recognize their young loyal customers the result also relies on the firms inability a priori to tell different generations apart it is the outcome of the unique equilibrium of a simplified two period or t period version of the game and holds with forward looking consumers who are impatient enough

optimal search for product information consumers often need to search for product information before making purchase decisions we consider a tractable continuous time model of gradual learning in which consumers incur search costs to learn further product information and update their expected utility of the product at each search occasion we characterize the optimal stopping rules for either purchase or no purchase as a function of search costs and of the importance informativeness of each attribute this paper also characterizes how the likelihood of purchase changes with the ex ante expected utility search costs and the importance informativeness of each attribute we discuss optimal pricing the impact of consumer search on profits and social welfare and how the seller chooses its price to strategically affect the extent of the consumers search behavior we show that lower search costs can hurt the consumer because the seller may then choose to charge higher prices discounting creates asymmetry in the purchase and no purchase search thresholds and may lead to lower prices if search occurs in equilibrium or higher prices if there is no search in equilibrium this paper also considers searching for signals of the value of the product heterogeneous importance of attributes endogenous intensity of search and social learning this paper was accepted by pradeep chintagunta marketing

cause marketing spillover effects of cause related products in a product portfolio the number of firms carrying a cause related product has significantly increased in recent years we consider a duopoly model of competition between firms in two products to determine which products a firm will link to a cause we first test the behavioral underpinnings of our model in two laboratory experiments to demonstrate the existence of both a direct utility benefit to consumers from cause marketing cm and a spillover benefit onto other products in the portfolio linking one product in a product portfolio to a cause can therefore increase sales both of that product and via a spillover effect of other products in the firm s portfolio we construct a cm game in which each firm chooses which products if any to place on cm in the absence of a spillover benefit a firm places a product on cm if and only if it can increase its price by enough to compensate for the cost of cm thus in equilibrium firms either have both products or neither product on cm however with the introduction of a spillover benefit to the second product this result changes we show that if a single firm in the market links only one product to a cause it can raise prices on both products and earn a higher profit we assume each firm has an advantage in one product and show that there is an equilibrium in which each firm links only its disadvantaged product to a cause if the spillover effect is strong there is a second equilibrium in which each firm links only its advantaged product to a cause in each case firms raise their prices on both products and earn higher profits than when neither firm engages in cm we also show that a firm will never place its entire portfolio on cm overall our work implies that by carrying cause related products companies can not only improve their image in the public eye but also increase profits

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

service cancellation and competitive refund policy although previous research demonstrates the profitability of partial refund policies in a monopoly setting there is a certain lack of ubiquity in practice about these refunds in competitive service markets this raises the question of how a partial refund policy may work and whether it is even sustainable in a competitive environment this study investigates how competition may influence the profitability and the equilibrium choice of refund policies it is shown that partial refunds may endogenously change the nature of strategic interaction between service providers from local monopolies into a competition regime which moderates the gains from exploiting the efficiency enhancing effect of partial refunds a whole range of pure strategy equilibria can be obtained as a result of the interplay between the efficiency improving and the competition intensifying effects when the capacity is small large such that the efficiency improving the competition intensifying effect is dominant both firms in equilibrium follow identical partial zero refund policies moreover interestingly the symmetric firms may end up in an asymmetric equilibrium in which one firm follows a partial refund policy and the other adopts a zero refund policy

consumer myopia standardization and aftermarket monopolization abstract in this paper i show that the standard bertrand competition argument does not apply when firms compete for myopic consumers who optimize period by period i develop the model in the context of aftermarket with overlapping generations of consumers simultaneous product offerings in the primary market and aftermarket establishes a price floor for the primary good this constraint prevents aftermarket rents from being dissipated by the primary market competition duopoly firms earn positive profits despite price competition with undifferentiated products nonetheless government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market

the role of rebates in the hybrid competition between a national brand and a private label with present biased consumers abstract over the past years rebates have been increasingly used by national brand nb manufacturers conventional wisdom suggests that rebates are beneficial to firms as long as positive slippage exists based on the present biased preference theory we investigate the performance of nb rebates as a counterstrategy to the retailer s private label pl game theoretic models are developed to characterize channel dynamics involving consumers knowledge levels of the present biased preferences our model reveals multiple insights first a positive slippage rate does not necessarily benefit the nb manufacturer if the rebates fail to expand the demand of the nb second the retailer s commitment to the original nb price plays a positive role in improving the equilibrium profits of both parties third for loss averse consumers under preference uncertainties the nb manufacturer and the retailer prefer a low redemption cost in contrary to the conventional idea that sellers take advantage of consumers with high redemption costs

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

personalized pricing and advertising an asymmetric equilibrium analysis we study personalized price competition with costly advertising among n quality cost differentiated firms strategies involve mixing over both prices and whether to advertise in equilibrium only the top two firms advertise earning bertrand like profits welfare losses initially rise then fall with the ad cost with losses due to excessive advertising and sales by the wrong firm when firms are symmetric the symmetric equilibrium yields perverse comparative statics and is unstable our key results apply when demand is elastic when ad costs are heterogeneous and with noise in consumer tastes

the existence of low end firms may help high end firms two models of competition between high end and low end products benefiting the high end firms are presented one is a quantity competition model and the other is a price competition model with product differentiation the key factor is the existence of two heterogeneous consumer groups those who demand only high end name brand products and those who care little whether products are high or low end we show that under certain conditions the profits of firms in the high end market are larger when there are firms producing low end products than when there are not the existence of price sensitive consumers who care little about product quality intensifies competition among the high end firms the existence of low end firms functions as a credible threat which induces the high end firms not to overproduce because price sensitive consumers buy products from the low end firms the result provides a new theoretical mechanism concerning the profitability and pricing of national brand firms after the entry of private labels it has an implication for pricing and marketing strategies established firms should not decrease their prices after the entry of nonestablished firms

can a decline in search cost increase prices this paper provides a new explanation of why a decline in consumers price search cost may not lead to lower prices in a duopoly with price competition i show that when some consumers are captive to one firm there may be a non monotonic relationship between search cost and market power firms may charge high prices with higher probability and the average price charged may be higher when consumers price search cost falls below a critical level furthermore when firms have asymmetric captive segments expected prices charged by each firm may move in opposite directions as search cost declines resume est ce qu un declin dans le cout de la recherche accroit les prix ce texte propose une nouvelle explication des raisons pour lesquelles un declin dans le cout de la recherche des consommateurs pour le meilleur prix peut ne pas entrainer un declin du niveau des prix dans un duopole avec competition par les prix on montre que quand certains consommateurs sont prisonniers d une firme il peut y avoir une relation non monotone entre cout de la recherche et pouvoir dans ce marche les firmes peuvent imposer des prix plus eleves avec une plus grande probabilite et le prix moyen charge peut etre plus eleve quand le cout de recherche du meilleur prix des consommateurs tombe au dessous d un seuil critique de plus quand les firmes ont des segments captifs asymetriques le prix charge anticipe pour chaque firme peut se deplacer dans des directions opposees a proportion que les couts de recherche declinent

online shopping and platform design with ex ante registration requirements we study platform design in online markets in which buying involves a nonmonetary cost for consumers caused by privacy and security concerns firms decide whether to require registration at their website before consumers learn relevant product information we derive conditions under which a monopoly seller benefits from ex ante registration requirements and demonstrate that the profitability of registration requirements is increased when taking into account the prospect of future purchases or an informational value of consumer registration to the firm moreover we consider the effectiveness of discounts store credit as a means to influence the consumers registration decision finally we confirm the profitability of ex ante registration requirements in the presence of price competition the online appendix is available at https doi org 10 1287 mnsc 2016 2595 this paper was accepted by j miguel villas boas marketing

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

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

did the euro foster online price competition evidence from an international price comparison site i introduction the euro became a reality for consumers in 12 nations on 1 january 2002 when it was introduced for retail transactions in all the participating countries 1 prior to this retail transactions were conducted in local currencies although there were many macroeconomic and political reasons for the implementation of a single currency one consumer based argument made in favor of the euro s introduction was that a single currency would facilitate the transparency of prices across europe and reduce transaction costs associated with currency exchange pedro solbes the european union eu commissioner for economic and financial affairs suggested that trading in the same currency across borders lowers costs while cross border price transparency encourages competition 2 presumably the mechanism that solbes has in mind by which price transparency encourages competition is through increasing the intensity of consumer search across countries internet price comparison sites offer a natural place to look for such effects given that geographic boundaries are irrelevant online and price transparency in this setting makes it fairly easy for consumers to identify bargains and arbitrage price differences within and among eurozone countries 3 in this article we study the dynamics of online retail pricing in the period immediately before and immediately after the retail introduction of the euro to assess its impact using retail price data that we collected from kelkoo the leading internet price comparison site in the eu our analysis is based on a data set that has several features that distinguish it from the extant literature 4 we collected firm and price information from the kelkoo sites in seven eu countries four in the eurozone and three outside it our study focuses on pricing for 28 products across a variety of product categories and price points we obtained price information during a period that straddled the introduction of the euro thus we are able to look at variation both pre and post euro introduction as well as variation between pricing inside and outside the eurozone to our knowledge this is the first study that offers as many cross country comparisons of online prices and covers as broad a range of products 5 we believe this to be one of the first academic studies regarding the impact of the euro on retail pricing 6 by including four eurozone and three non eurozone countries in the study we examine what some might view as a natural experiment on the impact of this important monetary reform on pricing behavior we recognize that there are differing views of the relevant transaction price to use in comparing prices in online markets some have taken the position that identical products sold by different firms in online markets are homogeneous and therefore that a majority of consumers using a price comparison site will purchase at the minimum listed price see baye and morgan 2001 in this case the relevant price to compare pre and post euro is the minimum price on the other hand one might reasonably argue that price differences for identical products stem from heterogeneities in service or reputations and that firms charging higher prices also enjoy sales note the work of narasimhan 1988 pan et al 2001 and baye et al 2004 in this case the natural comparison is the average price charged by all firms in the market the absence of sales data precludes us from discriminating between these two extreme views therefore we study both average and best quoted minimum prices online figure 1 depicts the trend in the difference in prices over time in this figure we plot the difference in the average price and the difference in the average minimum price between the eurozone and the non eurozone on a weekly basis negative numbers indicate that prices in the eurozone are lower than those in the non eurozone and positive figures indicate the reverse

further results on the bertrand game with different marginal costs this note provides an alternative construction to blume 2003 of equilibria in the standard model of bertrand competition with homogeneous products and different marginal costs that achieve the conventional outcome in addition i provide a means to select one of these equilibria

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

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

characterization of the support of the mixed strategy price equilibria in oligopolies with heterogeneous consumers abstract this paper revisits the theory of oligopoly pricing and shows that for a large class of demand and cost functions a mixed strategy equilibrium necessarily implies that each firm s equilibrium strategy is a discrete distribution over a finite number of prices

predicting competitive response to a major policy change combining game theoretic and empirical analyses this research uses procter gamble s value pricing initiative as a context for testing whether actual competitor and retailer response to a major policy change can be predicted using a game theoretic model we first estimate demand functions for p g and competitor brands from the period before value pricing was initiated we then formulate a dynamic manufacturer retailer stackelberg model that includes p g a national brand competitor and a retailer the model takes p g s move as given and prescribes the price and promotion response of the competitors and the retailer we substitute the estimated demand parameters into the model to obtain prescriptions for each competitor and the retailer and see whether these prescriptions are related to the actual response we find that the dynamic game theoretic model calibrated with empirical estimates of demand parameters has significant predictive power we also test the predictive power of two benchmark models the first is based on the reaction function approach of leeflang and wittink leeflang peter s h wittink dick r 1992 diagnosing competitive reactions using aggregated scanner data internat j res marketing9 39 57 and the second is a simplification of our dynamic model where the retailer is not strategic the dynamic game theoretic model performs better than either benchmark

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

putting on a tight leash and levelling playing field an experiment in strategic obfuscation and consumer protection the paper reports the results of an experiment where asymmetric sellers of a product can obfuscate the market we show that policy measures may have unintended effects of increasing obfuscation incentives we find that policies that limit the effectiveness of obfuscation and policies that promote parity between firms can lead less prominent firms to increase their obfuscation efforts despite this unintended effect however the former type of policies is effective in boosting consumer welfare

consumer privacy and marketing avoidance a static model we introduce the concept of marketing avoidance consumer efforts to conceal themselves and to deflect marketing the setting is one in which sellers market some item through solicitations to potential consumers who differ in their benefit from the item and suffer harm from receiving solicitations concealment by one consumer induces sellers to shift solicitations to other consumers whereas deflection does not solicitations cause two externalities direct harm on consumers and the indirect cost of consumer concealment and deflection we find that in markets where the marginal cost of solicitation is sufficiently low efforts by low benefit consumers to conceal themselves will increase the cost effectiveness of solicitations and lead sellers to market more however concealment by high benefit consumers leads sellers to market less furthermore concealment by low benefit consumers increases direct privacy harm and consumer welfare is higher with deflection than concealment finally it is optimal to impose a charge on solicitations

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

search and segregation abstract consumers willingness to pay for an identical product e g as caused by differences in local income or tastes may differ greatly across locations yet while a large literature examines consumers optimal price and product search behavior under various market configurations the equilibrium effects of such consumer segregation remain unexplored to this end i study a stylized model in which two local monopolistic markets differ in size and their consumers willingness to pay after observing their native market s price a subset of flexible consumers may travel to the other market at positive cost hoping for a bargain i show that as long as the proportion of flexible high valuation consumers is not too large active and directed search to the lower valuation market will occur in equilibrium if the higher valuation market is relatively large in size complex mixed strategy pricing emerges in equilibrium for regulators increasing the fraction of flexible consumers tends to be more effective than manipulating search costs

an experimental study of price dispersion abstract we report an experiment examining a simple clearinghouse model that generates price dispersion according to this model price dispersion arises because of consumer heterogeneity some consumers are informed and simply buy from the firm offering the lowest price while the remaining consumers are captive and shop based on considerations other than price in our experiment we observe substantial and persistent price dispersion we find that as predicted an increase in the fraction of informed consumers leads to more competitive pricing for all consumers we also find as predicted that when more firms enter the market prices to informed consumers become more competitive while prices to captive customers become less competitive thus our experiment provides strong support for the model s comparative static predictions about how changes in market structure affect pricing

capacity sharing between competitors market competition may lead to mismatch between supply and demand that is overpricing may give rise to underselling and underpricing may yield stockout capacity sharing is a common practice to

consumer stockpiling and competitive promotional strategies an examination of brand prices in several categories reveals that the distribution of prices is multimodal with firms offering shallow and deep discounts another interesting feature of these distributions is that they may have holes in the interior of the support these pricing distributions do not occur in extant theoretical models of price promotions we develop a dynamic model of competition in which some price sensitive consumers stockpile during periods of deep discounts a game theoretic analysis of our model generates a multimodal pricing distribution with a hole in the interior of the support consumer stockpiling in our model also gives rise to negative serial correlation in prices this is consistent with our empirical observation of the pricing distribution of several brands across multiple categories in the iri marketing data set we generate several interesting insights into firms optimal promotional strategies and their interplay with the clientele mix market structure and other market factors we find that in equilibrium stockpiling by price sensitive consumers neither harms nor benefits firms when they adopt equilibrium strategies interestingly when price sensitive consumers stockpile even increased consumption as a result of stockpiling does not lead to higher profits for firms

tax evasion tax competition and gains from nondiscrimination with equilibrium mixed strategies abstract this note extends janeba and peters econ j 109 1999 93 paper on tax evasion and tax competition by allowing for equilibrium mixed strategies it shows that discrimination is still the weakly dominant strategy for both countries

technical note price promotions in asymmetric duopolies with heterogeneous consumers in this note i investigate the outcome of a static price competition between a strong firm a firm with an established loyal consumer base and a weak firm a firm without loyal consumers the consumers are divided into the strong firm s loyal segment and the switching segment members of which have heterogeneous tastes for the firms products in the presence of loyal consumers for a large set of the parameters of the demand function the firms use mixed strategies over a finite number of prices these strategies can be interpreted as occurrences of sales the most common case is that of the strong firm s using two prices and the weak firm s using one price however when both firms use sales the weak firm promotes more often than the strong firm

price competition between two international firms facing tariffs abstract this paper examines the effects of tariffs on price setting duopolists selling a homogeneous product the producers cannot segment geographically distinct markets it provides a complete characterization of the equilibrium mixed strategies and analyzes the pattern of competition for different tariffs if a country raises its tariff the profits of both producers increase although the protected firm typically benefits more than its foreign counterpart growth in one market may reduce the profits of the firm located in the other market

theoretical models of sales promotions contributions limitations and a future research agenda our objective in this paper is to review theoretical models of sales promotions we highlight the key contributions of these models discuss their limitations and outline an agenda for future research managerial questions examined in these models include some very fundamental issues such as why firms resort to the use of sales promotions in mature markets and why the use of sales promotions has increased dramatically during the last two decades also included in this review are models that address firm level strategic issues such as the allocation of dollars between advertising and sales promotions and the relative emphasis on trade promotions vis a vis consumer promotions we also review theoretical models that explain how consumers respond to price promotions and what type of sales promotion tools may be superior to others in a particular market the review concludes with a possible agenda for future research

supermarket competition the case of every day low pricing every day low pricing edlp strategy has proved to be a successful innovation resulting in higher profits to supermarkets adopting it in competition with promotional pricing promo conventional wisdom attributes this success either to lower costs or to edlp better serving time constrained consumers while discouraging cherry pickers who seek promotions however it is unclear that such cost savings are being fully realized since edlp stores also engage in price promotions also continued existence of promo stores means that costs are not the only factor and they compete effectively without relying just on the cherry pickers furthermore experimental evidence suggests that a supermarket cannot obtain higher profits by merely setting constant low prices leading to the question exactly what makes edlp successful this question is of particular relevance to both academics and practitioners who have been intrigued by the success of this retailing strategy more generally the retailing issues addressed in this paper the economic analysis of competition and the empirical findings should be of interest to the broader community of researchers and managers we investigate the factors contributing to edlp s success by analyzing the competition between supermarkets through a game theoretic analysis of a market consisting of both time constrained consumers and cherry pickers key features of our model are consumers shop and purchase a basket of goods based on price announcements by stores and rational expectations of unannounced prices stores carry more than one good and compete through prices service convenience and appropriate communication strategies and no exogenous cost asymmetries we derive the conditions under which retailers choosing different strategies edlp and promo is a perfect nash equilibrium our analysis shows that the edlp store s offering of constant every day low prices is an equilibrium outcome endogenously determined successful implementation of the edlp strategy involves communication of relative basket prices implying that merely setting constant low prices is not viable we further demonstrate that while time constrained consumers find every day low prices at edlp attractive and cherry pickers the promotions at promo clientele effects are in fact more complicated specifically in equilibrium the promo store offers a higher service level as desired by time constrained consumers and the edlp store a lower service level in keeping with the needs of cherry pickers this choice of service by the two stores results in a cleaner segmentation of the market the higher relative basket price and service at the promo store results in a larger base of time constrained consumers to shop at the promo store and a larger base of cherry pickers to shop at the edlp store even though some cherry pickers continue to visit the promo store to avail of the price specials in this way our results contradict the conventional wisdom on edlp strategy as being mainly geared towards time constrained consumers finally industry profits are higher in an edlp promo equilibrium than when stores adopt identical strategies our analysis and results also offer a more complete characterization of the edlp and promo strategies indeed we show that edlp and promo strategies are positioning strategies rather than merely pricing strategies with different elements price promotions service and communications while the edlp store uses basket prices to attract both segments the promo store uses service and price specials to compete in the time constrained and cherry picking segment respectively given these different approaches of the two stores the communication strategies of the edlp and the promo stores emphasize these differences as well in this way we show as suggested by corstjens and corstjens 1994 that positioning in a retail context involves developing multidimensional strategies appealing to all segments while each element of the strategy may focus on a different consumer segment this is in contrast to the traditional view of segmentation in which different products in a product line for example are designed to appeal to different segments we complete the analysis by examining the data from the trade press and a survey conducted in a major metropolitan area these data while limited in scope support our theoretical results

dealing temporary price cuts by seller as a buyer discrimination mechanism this paper is concerned with temporary price cuts deals sales and specials as a mechanism for the seller to price discriminate between buyers with different intensities of demand we analyze why a seller offers such price cuts which buyers take advantage of them and what the parameters are that determine the amount and frequency of the discount offered in the remainder of this section we briefly review the literature on price deals 1 in section ii simple models of buyer and seller behavior are developed and we show why and how a seller adopts a dealing strategy section iii summarizes the key implications of the model and indicates how the price discrimination hypothesis could be tested in practice section iv suggests possible extensions of the model finally section v gives our conclusions in the marketing literature the issue of who is deal prone has been extensively researched an explanation for temporary price cuts usually called deals sales or specials is provided we hypothesize that they are a mechanism that discriminates between more intense and less intense demanders we further hypothesize a positive relationship between demand elasticity and holding costs buyers with more intense demand with high holding costs are those who will be buying the product at its regular price the low holdingcost buyers take advantage of deals by forward buying the model is applicable to three relationships 1 manufacturer reseller where the reseller may be a wholesaler or a retailer 2 resellerreseller for example wholesaler retailer and 3 retailer consumer we are grateful to michael mussa and albert madansky for their comments we also benefited from comments made by the marketing faculty of the wharton school at a seminar where an earlier version of this paper was presented neil beckwith in particular is acknowledged 1 for a more detailed review of deals and similar pricecutting mechanisms e g mail in rebates cents off labels coupons etc see narsimhan 1982 chan 2 journal of business 1985 vol 58 no 3 1985 by the university of chicago all rights reserved 0021 9398185 5803 0004 01 50

research note consumer heterogeneity and competitive price matching guarantees price matching guarantees are widely used in consumer and industrial markets previous studies argue that they are a marketing tactic that facilitates implicit price collusion this is because once a store adopts this marketing tactic its rivals can no longer steal its customers by undercutting its price and hence they have little incentive to initiate price cuts while a store with price matching guarantees has no fear of losing customers to rivals price cuts it has every incentive to raise its own price to charge a higher price to its loyal consumers a growing body of legal literature uses this argument today to justify calls for antitrust actions against stores employing this marketing tactic however this theoretical conclusion baffles practitioners and industry experts in practice sellers typically embrace this marketing tactic in response to heavier competition and a growing bargain consciousness among shoppers the introduction of price matching guarantees by a store is frequently interpreted by industry observers as the initiation of a price war rather than a signal of price collusion this assertion is supported in many instances by the fact that stores that introduce price matching guarantees also roll back their prices and typically suffer subsequent loss of profits most ironically the favorite examples used by researchers to illustrate how price matching guarantees can enforce price collusion crazy eddie and nobody beats the wiz have subsequently either gone bankrupt or filed for federal bankruptcy protection in this study we show that price matching guarantees can indeed facilitate competition the expected prices and profits can be strictly lower when all stores adopt price matching guarantees than when they are not allowed to this is because the adoption of price matching guarantees generates not only a competition dampening effect which has been recognized in the literature but also a competition enhancing effect this latter effect comes from the fact that price matching guarantees encourage price search by those consumers who prefer to shop at a particular store but are mindful of saving opportunities these consumers will have incentives to obtain the rival store s price when their favorite store offers price matching guarantees to avail themselves of the lowest possible price at their favorite store as a result price matching guarantees reduce the number of purchases at the store from those consumers who would have paid the full price and thus prompt a store to price more aggressively to bid for more incremental sales this competition enhancing effect can more than offset the competition dampening effect in markets where consumers differ in their price search costs and store loyalty thus our study casts doubt on the advisability of blanket prohibition on price matching guarantees our argument relies only on consumer segmentation and on the phenomenon of periodic sales both of which are common in retail markets we arrive at our conclusion by incorporating bargain shoppers and opportunistic loyals into the standard sales promotion models in contrast the past literature on price matching guarantees ignores the ubiquitous phenomenon of sales in retail markets and overlooks those consumers who prefer to shop at a particular store but are alert to saving opportunities as a result it is troubled by two awkward conclusions on the one hand price matching guarantees simply remove rivals incentives to undercut in price and hence also their incentives to run sales this implies that the adoption of price matching guarantees in a market will eliminate the phenomenon of sales which is obviously counterfactual on the other hand in equilibrium no consumer actually invokes price matching guarantees as each player has incentives to close any price gap in the market this is obviously false based on our casual observations and our conversations with store managers theoretical research on the subject thus far has been overwhelmingly one sided and empirical or experimental studies are conspicuously lacking we hope that our conclusion will spark further research in both directions a healthy debate will broaden our perspective on an issue of great importance in formulating public policies and in managerial decision making

promotion effect on endogenous consumption over the years researchers have found that promotion makes consumers switch brands and purchase earlier or more however it is unclear how promotion affects consumption especially for product categories that are perceived to be versatile and substitutable in this paper we propose a dynamic structural model with endogenous consumption under promotion uncertainty to analyze the promotion effect on consumption this model recognizes consumers as rational decision makers who form promotion expectations and plan their purchase and consumption decisions in light of promotion schedule applying the proposed model to packaged tuna and yogurt we find that endogenous consumption responds to promotion as a result of forward looking and stockpiling behavior this is the first empirical paper that recognizes consumption as an endogenous decision variable and proposes a structural model to offer behavioral explanations on whether how and why promotion encourages consumption for product categories with flexible consumption