IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v82y2022ics0167718722000145.html
   My bibliography  Save this article

Price leadership with promotions

Author

Listed:
  • Sinitsyn, Maxim

Abstract

I introduce and analyze a framework of price leadership that incorporates an important feature of a modern retail industry, namely that firms commit to a promotion calendar. In my model, a leader commits to such a calendar in the form of a price distribution, and a follower responds to this strategy. I derive the leader’s optimal price distribution and show that it forces the follower to charge the highest possible price. In contrast to the standard Bertrand outcome, both firms earn positive profits. The framework is extended to incorporate loyal consumers, capacity constraints, and asymmetric costs.

Suggested Citation

  • Sinitsyn, Maxim, 2022. "Price leadership with promotions," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:indorg:v:82:y:2022:i:c:s0167718722000145
    DOI: 10.1016/j.ijindorg.2022.102838
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718722000145
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijindorg.2022.102838?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Amir, Rabah & Stepanova, Anna, 2006. "Second-mover advantage and price leadership in Bertrand duopoly," Games and Economic Behavior, Elsevier, vol. 55(1), pages 1-20, April.
    2. van Damme, Eric & Hurkens, Sjaak, 2004. "Endogenous price leadership," Games and Economic Behavior, Elsevier, vol. 47(2), pages 404-420, May.
    3. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2008. "A Price Discrimination Model of Trade Promotions," Marketing Science, INFORMS, vol. 27(5), pages 779-795, 09-10.
    4. John Conlisk & Eitan Gerstner & Joel Sobel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 489-505.
    5. Joel Sobel, 1984. "The Timing of Sales," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 353-368.
    6. Anderson, Eric & Malin, Benjamin A. & Nakamura, Emi & Simester, Duncan & Steinsson, Jón, 2017. "Informational rigidities and the stickiness of temporary Sales," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 64-83.
    7. Ram C. Rao, 1991. "Pricing and Promotions in Asymmetric Duopolies," Marketing Science, INFORMS, vol. 10(2), pages 131-144.
    8. Maxim Sinitsyn, 2017. "Pricing with Prescheduled Sales," Marketing Science, INFORMS, vol. 36(6), pages 999-1014, November.
    9. David R. Bell & James M. Lattin, 1998. "Shopping Behavior and Consumer Preference for Store Price Format: Why “Large Basket” Shoppers Prefer EDLP," Marketing Science, INFORMS, vol. 17(1), pages 66-88.
    10. Maxim Sinitsyn, 2012. "Coordination of Price Promotions in Complementary Categories," Management Science, INFORMS, vol. 58(11), pages 2076-2094, November.
    11. Rajiv Lal, 1990. "Price Promotions: Limiting Competitive Encroachment," Marketing Science, INFORMS, vol. 9(3), pages 247-262.
    12. Kinshuk Jerath & S. Sajeesh & Z. John Zhang, 2016. "A Model of Unorganized and Organized Retailing in Emerging Economies," Marketing Science, INFORMS, vol. 35(5), pages 756-778, September.
    13. Sinitsyn, Maxim, 2008. "Characterization of the support of the mixed strategy price equilibria in oligopolies with heterogeneous consumers," Economics Letters, Elsevier, vol. 99(2), pages 242-245, May.
    14. Ting Zhu & Vishal Singh & Anthony Dukes, 2011. "Local competition, entry, and agglomeration," Quantitative Marketing and Economics (QME), Springer, vol. 9(2), pages 129-154, June.
    15. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    16. Yunjian Xu & Katrina Ligett, 2018. "Commitment in first-price auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(2), pages 449-489, August.
    17. Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, vol. 78(5), pages 936-953, December.
    18. Deneckere, Raymond J & Kovenock, Dan & Lee, Robert, 1992. "A Model of Price Leadership Based on Consumer Loyalty," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 147-156, June.
    19. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March.
    20. ,, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    21. Preyas S. Desai & Devavrat Purohit, 2004. "“Let Me Talk to My Manager”: Haggling in a Competitive Environment," Marketing Science, INFORMS, vol. 23(2), pages 219-233, August.
    22. Manish Gangwar & Nanda Kumar & Ram C. Rao, 2014. "Consumer Stockpiling and Competitive Promotional Strategies," Marketing Science, INFORMS, vol. 33(1), pages 94-113, January.
    23. Caitlin E. Caspi & Jennifer E. Pelletier & Lisa J. Harnack & Darin J. Erickson & Kathleen Lenk & Melissa N. Laska, 2017. "Pricing of Staple Foods at Supermarkets versus Small Food Stores," IJERPH, MDPI, vol. 14(8), pages 1-12, August.
    24. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
    25. Maxim Sinitsyn, 2008. "Technical Note--Price Promotions in Asymmetric Duopolies with Heterogeneous Consumers," Management Science, INFORMS, vol. 54(12), pages 2081-2087, December.
    26. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    27. Rajiv Lal & Ram Rao, 1997. "Supermarket Competition: The Case of Every Day Low Pricing," Marketing Science, INFORMS, vol. 16(1), pages 60-80.
    28. Paul W. Dobson & Michael Waterson, 2005. "Chain‐Store Pricing Across Local Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 93-119, March.
    29. Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hao Lan & Tim Lloyd & Wyn Morgan & Paul W. Dobson, 2022. "Are food price promotions predictable? The hazard function of supermarket discounts," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(1), pages 64-85, February.
    2. Maxim Sinitsyn, 2017. "Pricing with Prescheduled Sales," Marketing Science, INFORMS, vol. 36(6), pages 999-1014, November.
    3. Katja Seim & Michael Sinkinson, 2016. "Mixed pricing in online marketplaces," Quantitative Marketing and Economics (QME), Springer, vol. 14(2), pages 129-155, June.
    4. Maxim Sinitsyn, 2020. "Evaluating horizontal mergers in the presence of price promotions," Quantitative Marketing and Economics (QME), Springer, vol. 18(1), pages 39-60, March.
    5. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    6. Holzer, Patrick Sebastian, 2020. "The effect of time-varying factors on promotional activity in the German milk market," Journal of Retailing and Consumer Services, Elsevier, vol. 55(C).
    7. Seaton, Jonathan S. & Waterson, Michael, 2013. "Identifying and characterising price leadership in British supermarkets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 392-403.
    8. Sofia Berto Villas-Boas & J. Miguel Villas-Boas, 2008. "Learning, Forgetting, and Sales," Management Science, INFORMS, vol. 54(11), pages 1951-1960, November.
    9. Francesco Nava & Pasquale Schiraldi, 2014. "Sales And Collusion In A Market With Storage," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 791-832, June.
    10. Scott M. Gilpatric & Youping Li, 2016. "Endogenous Price Leadership and the Strategic Acquisition of Information," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 859-873, January.
    11. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    12. Jorge Lemus & Fernando Luco, 2021. "Price Leadership and Uncertainty About Future Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 305-337, June.
    13. Eric Anderson & Nanda Kumar, 2007. "Price competition with repeat, loyal buyers," Quantitative Marketing and Economics (QME), Springer, vol. 5(4), pages 333-359, December.
    14. Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.
    15. Aniko Ory, 2016. "Consumers on a Leash: Advertised Sales and Intertemporal Price Discrimination," Cowles Foundation Discussion Papers 2047, Cowles Foundation for Research in Economics, Yale University.
    16. Wedad Elmaghraby & P{i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
    17. Chen, Zhiyuan & Liang, Xiaoying & Xie, Lei, 2016. "Inter-temporal price discrimination and satiety-driven repeat purchases," European Journal of Operational Research, Elsevier, vol. 251(1), pages 225-236.
    18. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 333-349, June.
    19. Berck, Peter & Brown, Jennifer & Perloff, Jeffrey M. & Villas-Boas, Sofia Berto, 2008. "Sales: Tests of theories on causality and timing," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1257-1273, November.
    20. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.

    More about this item

    Keywords

    Price promotions; Promotion calendars; Mixed strategies; Price leadership;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:82:y:2022:i:c:s0167718722000145. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.