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Models of Competitive Price Promotions: Some Empirical Evidence from the Coffee and Saltine Crackers Markets

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Author Info
Villas-Boas, J Miguel

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Abstract

I present tests of a competitive rationale for price promotions. In a model with a population of informed and uninformed customers, price competition yields a static equilibrium in which each seller draws a price from a specified density function. Price data on coffee and saltine crackers products are used to test whether the sample of prices on each product could have possibly come from the theoretically specified density function. The results suggest that some markets are indeed consistent with the marginal distributions of prices predicted by the model. Furthermore, in the process of testing this rationale for price promotions, estimates are obtained for the marginal cost of each product, the number of competing goods, and the percentage of informed consumers. The resulting excess variability of these estimates across competing brands can also raise questions with respect to the empirical validity of the model. Copyright 1995 by MIT Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Economics & Management Strategy.

Volume (Year): 4 (1995)
Issue (Month): 1 (Spring)
Pages: 85-107
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Handle: RePEc:bla:jemstr:v:4:y:1995:i:1:p:85-107

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  3. Kyle Bagwell & Asher Wolinsky, 2000. "Game Theory and Industrial Organization," Discussion Papers 1307, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  4. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Working Papers 2006-12, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  5. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Working Papers 2004-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
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  6. Peter Berck & Jennifer Brown & Jeffrey Perloff & Sofia Villas-Boas, 2007. "Sales: Tests of Theories on Causality and Timing," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1031, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
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  7. Timothy Richards, 2007. "A nested logit model of strategic promotion," Quantitative Marketing and Economics, Springer, vol. 5(1), pages 63-91, March. [Downloadable!] (restricted)
  8. Maarten C.W. Janssen & José Luis Moraga-González & Matthijs R. Wildenbeest, 2004. "Consumer Search and Oligopolistic Pricing: An Empirical Investigation," Tinbergen Institute Discussion Papers 04-071/1, Tinbergen Institute. [Downloadable!]
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  9. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market," Working Papers 2004-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  10. Sebnem Bahadir-Lust & Jens-Peter Loy & Christoph R. Weiss, 2007. "Are they always offering the lowest price? An empirical analysis of the persistence of price dispersion in a low inflation environment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 777-788. [Downloadable!]
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  13. D. Klapper & L. Cooper & L. Hildebrandt, . "The Congruence of Theoretical and Empirical Patterns of Inter-Store Price Competition," Sonderforschungsbereich 373 1999-44, Humboldt Universitaet Berlin.
  14. John Morgan & Martin Sefton, 2001. "Information externalities in a model of sales," Economics Bulletin, Economics Bulletin, vol. 4, pages 1-5. [Downloadable!]
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