Price competition with repeat, loyal buyers
Tóm tắt
Extant theoretical models suggest that greater consumer loyalty increases a firm’s market power and leads to higher prices and fewer price promotions (Klemperer, Quarterly Journal of Economics 102(2):375–394, 1987a, Economic Journal 97(0):99–177, 1987b, Review of Economic Studies 62(4):515–539, 1995; Padilla, Journal of Economic Theory 67(2):520–530, 1995). However, in some markets large, national brands that are able to generate more consumer loyalty than their rivals offer lower prices and promote more frequently. In this paper, we develop a two-period game-theoretic, asymmetric duopoly model in which firms differ in their ability to retain repeat, loyal buyers. In this market, we demonstrate that it is optimal for a firm that generates more loyalty to offer a lower average price and promote more frequently than a weaker competitor. Numerical analysis of a more general infinite period version of this asymmetric model leads to three additional results. First, we show that there is an inverted-U relationship between a weak firm’s ability to attract repeat, loyal consumers and strong firm profits. Second, we show that the relative ability of firms to attract repeat buyers affects whether serial and contemporaneous price correlations are positive or negative. Finally, we highlight the effect of dynamics on firms’ expected prices and profits.
Tài liệu tham khảo
citation_journal_title=Journal of Economic Theory; citation_title=A comment on: Revisiting dynamic duopoly with consumer switching costs; citation_author=E. T. Anderson, N. Kumar, S. Rajiv; citation_volume=116; citation_issue=1; citation_publication_date=2004; citation_pages=177-186; citation_doi=10.1016/j.jet.2003.08.006; citation_id=CR1
citation_journal_title=Marketing Science; citation_title=Long-run effects of promotion depth on new versus established customers: Three field studies; citation_author=E. T. Anderson, N. Kumar, S. Rajiv; citation_volume=23; citation_issue=1; citation_publication_date=2004; citation_pages=4-20; citation_doi=10.1287/mksc.1030.0040; citation_id=CR2
citation_journal_title=Econometrica; citation_title=Multi-period competition with switching costs; citation_author=A. Beggs, P. Klemperer; citation_volume=60; citation_issue=3; citation_publication_date=1992; citation_pages=651-666; citation_doi=10.2307/2951587; citation_id=CR3
citation_journal_title=Management Science; citation_title=Pricing strategies in a dynamic duopoly: A differential game model; citation_author=P. Chintagunta, V. Rao; citation_volume=42; citation_issue=11; citation_publication_date=1996; citation_pages=1501-1514; citation_id=CR4
citation_journal_title=Quarterly Journal of Economics; citation_title=Cyclic pricing by a durable goods monopolist; citation_author=J. Conlisk, E. Gerstner, J. Sobel; citation_volume=99; citation_issue=3; citation_publication_date=1984; citation_pages=489-505; citation_doi=10.2307/1885961; citation_id=CR5
citation_journal_title=Marketing Science; citation_title=Decision-making under uncertainty: Capturing dynamic brand choice processes in turbulent consumer goods markets; citation_author=T. Erdem, M. P. Keane; citation_volume=15; citation_issue=1; citation_publication_date=1996; citation_pages=1-20; citation_doi=10.1287/mksc.15.1.1; citation_id=CR6
citation_journal_title=Journal of Econometrics; citation_title=Varying parameter models to accommodate dynamic promotion effects; citation_author=E. W. Foekens, P. S. H. Leeflang, D. R. Wittink; citation_volume=89; citation_issue=2; citation_publication_date=1999; citation_pages=249-268; citation_doi=10.1016/S0304-4076(98)00063-3; citation_id=CR7
citation_journal_title=Marketing Science; citation_title=A logit model of brand choice calibrated on scanner data; citation_author=P. M. Guadagni, J. D. C. Little; citation_volume=1; citation_issue=2; citation_publication_date=1983; citation_pages=203-238; citation_id=CR8
citation_journal_title=Review of Economic Studies; citation_title=Competition when consumers have switching costs: An overview with applications to industrial organization, macroeconomics, and international trade; citation_author=P. Klemperer; citation_volume=62; citation_issue=4; citation_publication_date=1995; citation_pages=515-539; citation_doi=10.2307/2298075; citation_id=CR9
citation_journal_title=Quarterly Journal of Economics; citation_title=Markets with consumer switching costs; citation_author=P. Klemperer; citation_volume=102; citation_issue=2; citation_publication_date=1987; citation_pages=375-394; citation_doi=10.2307/1885068; citation_id=CR10
citation_journal_title=Economic Journal; citation_title=Entry deterrence in markets with consumer switching costs; citation_author=P. Klemperer; citation_volume=97; citation_issue=0; citation_publication_date=1987; citation_pages=99-117; citation_doi=10.2307/3038233; citation_id=CR11
citation_journal_title=The Review of Economic Studies; citation_title=Price wars caused by switching costs; citation_author=P. Klemperer; citation_volume=56; citation_issue=3; citation_publication_date=1989; citation_pages=405-420; citation_doi=10.2307/2297555; citation_id=CR12
citation_journal_title=Marketing Science; citation_title=The dynamic effect of discounting on sales: Empirical analysis and normative pricing implications; citation_author=P. K. Kopalle, C. Mela, L. Marsh; citation_volume=18; citation_issue=3; citation_publication_date=1999; citation_pages=317-332; citation_id=CR13
citation_journal_title=Marketing Science; citation_title=Price promotions: Limiting competitive encroachment; citation_author=R. Lal; citation_volume=9; citation_issue=3; citation_publication_date=1990; citation_pages=247-262; citation_id=CR14
citation_journal_title=International Journal of Research in Marketing; citation_title=Diagnosing competitive reactions using aggregated scanner data; citation_author=P. S. H. Leeflang, D. R. Wittink; citation_volume=9; citation_issue=1; citation_publication_date=1992; citation_pages=39-57; citation_doi=10.1016/0167-8116(92)90028-J; citation_id=CR15
citation_journal_title=International Journal of Research in Marketing; citation_title=Competitive reaction versus consumer response: Do managers overreact?; citation_author=P. S. H. Leeflang, D. R. Wittink; citation_volume=13; citation_issue=2; citation_publication_date=1996; citation_pages=103-119; citation_doi=10.1016/0167-8116(96)00003-1; citation_id=CR16
citation_journal_title=Journal of Marketing Research; citation_title=The long-term effect of promotion and advertising on consumer brand choice; citation_author=C. Mela, S. Gupta, D. Lehmann; citation_volume=34; citation_issue=2; citation_publication_date=1997; citation_pages=246-261; citation_doi=10.2307/3151862; citation_id=CR17
citation_journal_title=Journal of Business; citation_title=Competitive promotional strategies; citation_author=C. Narasimhan; citation_volume=61; citation_issue=4; citation_publication_date=1988; citation_pages=427-449; citation_doi=10.1086/296442; citation_id=CR18
citation_journal_title=Journal of Economic Theory; citation_title=Revisiting dynamic duopoly with consumer switching costs; citation_author=A. J. Padilla; citation_volume=67; citation_issue=2; citation_publication_date=1995; citation_pages=520-530; citation_doi=10.1006/jeth.1995.1083; citation_id=CR19
citation_journal_title=Management Science; citation_title=Effectiveness of brand loyalty on competitive price promotional strategies; citation_author=J. S. Raju, V. Srinivasan, R. Lal; citation_volume=36; citation_issue=3; citation_publication_date=1990; citation_pages=276-304; citation_id=CR20
citation_journal_title=Marketing Science; citation_title=Pricing and promotions in asymmetric duopolies; citation_author=R. C. Rao; citation_volume=10; citation_issue=2; citation_publication_date=1991; citation_pages=131-144; citation_id=CR21
citation_journal_title=Journal of Marketing Research; citation_title=Investigating household state dependence effects across categories; citation_author=P. B. Seetharaman, A. Ainslie, P. K. Chintagunta; citation_volume=36; citation_issue=4; citation_publication_date=1999; citation_pages=488-500; citation_doi=10.2307/3152002; citation_id=CR22
citation_journal_title=Journal of Economic Theory; citation_title=Mixed pricing in an oligopoly; citation_author=Y. Shilony; citation_volume=14; citation_publication_date=1977; citation_pages=373-388; citation_doi=10.1016/0022-0531(77)90137-5; citation_id=CR23
citation_journal_title=Review of Economic Studies; citation_title=The timing of sales; citation_author=J. Sobel; citation_volume=51; citation_issue=3; citation_publication_date=1984; citation_pages=353-368; citation_doi=10.2307/2297428; citation_id=CR24
Van Oest, R., & Frances, P. H. (2003). Which brand gains share from which brands? Inference from store-level scanner data. Tinbergen Institute Discussion Paper.
citation_journal_title=American Economic Review; citation_title=A model of sales; citation_author=H. Varian; citation_volume=70; citation_issue=4; citation_publication_date=1980; citation_pages=651-659; citation_id=CR26
citation_journal_title=Marketing Science; citation_title=Consumer learning, brand loyalty and competition; citation_author=J. M. Villas-Boas; citation_volume=23; citation_issue=1; citation_publication_date=2004; citation_pages=134-145; citation_doi=10.1287/mksc.1030.0044; citation_id=CR27
citation_journal_title=Rand Journal of Economics; citation_title=Price cycles in markets with customer recognition; citation_author=J. M. Villas-Boas; citation_volume=35; citation_issue=3; citation_publication_date=2004; citation_pages=486-501; citation_doi=10.2307/1593704; citation_id=CR28
citation_journal_title=Journal of Economics Management & Strategy; citation_title=Dynamic competition with experience goods; citation_author=J. M. Villas-Boas; citation_volume=15; citation_issue=1; citation_publication_date=2006; citation_pages=37-66; citation_doi=10.1111/j.1530-9134.2006.00091.x; citation_id=CR29