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An Equilibrium Analysis of Defensive Response to Entry Using a Coupled Response Function Model

Author

Listed:
  • Thomas S. Gruca

    (University of Iowa)

  • K. Ravi Kumar

    (University of Southern California)

  • D. Sudharshan

    (University of Illinois at Urbana-Champaign)

Abstract

We determine the optimal response to competitive entry in a market characterized by a market share attraction model. The response of an incumbent is limited to changes in prices, advertising and distribution expenditures; brand positions are assumed to be fixed. We also assume that the entrant's position is chosen exogenously and that the sales potential of the market is constant. After proving the existence of a unique Nash equilibrium, we show that the optimal response depends on the relative market share of the incumbents. The response by nondominant brands (with market shares less than 50%) mirrors the prediction by decoupled response function models—reduce price, advertising and distribution spending. For the dominant brand (having a market share of 50+%), the response is to reduce price and marketing spending. This finding explains previous empirical results that could not be addressed by the decoupled models.

Suggested Citation

  • Thomas S. Gruca & K. Ravi Kumar & D. Sudharshan, 1992. "An Equilibrium Analysis of Defensive Response to Entry Using a Coupled Response Function Model," Marketing Science, INFORMS, vol. 11(4), pages 348-358.
    • Handle: RePEc:inm:ormksc:v:11:y:1992:i:4:p:348-358
    DOI: 10.1287/mksc.11.4.348
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    Citations

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    Cited by:

    1. Hadjinicola, George C. & Kumar, K. Ravi, 2002. "Modeling manufacturing and marketing options in international operations," International Journal of Production Economics, Elsevier, vol. 75(3), pages 287-304, February.
    2. Mesak, Hani I. & Bari, Abdullahel & Blackstock, Rob, 2016. "On the robustness and strategic implications of a parsimonious advertising – inventory competitive model with extensions to pricing competition," International Journal of Production Economics, Elsevier, vol. 180(C), pages 38-47.
    3. Ulrike Schuster & J?rgen W?ckl, 2005. "Optimal Defensive Strategies under Varying Consumer Distributional Patterns and Market Maturity," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 1(2), pages 187-206, July.
    4. Ravi Kumar, K. & Hadjinicola, George C., 1996. "Resource allocation to defensive marketing and manufacturing strategies," European Journal of Operational Research, Elsevier, vol. 94(3), pages 453-466, November.
    5. Stefan Roth, 1999. "Möglichkeiten und Grenzen ökonomischer Positionierungsmodelle," Schmalenbach Journal of Business Research, Springer, vol. 51(3), pages 243-266, March.
    6. Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2008. "On the Effects of Consumer Search and Firm Entry in a Multiproduct Competitive Market," Marketing Science, INFORMS, vol. 27(3), pages 461-473, 05-06.
    7. Mesak, Hani I., 1999. "On the generalizability of advertising pulsation monopoly results to an oligopoly," European Journal of Operational Research, Elsevier, vol. 117(3), pages 429-449, September.
    8. Jonathan D. Bohlmann & Peter N. Golder & Debanjan Mitra, 2002. "Deconstructing the Pioneer's Advantage: Examining Vintage Effects and Consumer Valuations of Quality and Variety," Management Science, INFORMS, vol. 48(9), pages 1175-1195, September.
    9. Green, Kesten C., 2005. "Game theory, simulated interaction, and unaided judgement for forecasting decisions in conflicts: Further evidence," International Journal of Forecasting, Elsevier, vol. 21(3), pages 463-472.
    10. Aravindakshan Ashwin & Ratchford Brian, 2011. "Solving Share Equations in Logit Models Using the LambertW Function," Review of Marketing Science, De Gruyter, vol. 9(1), pages 1-19, April.
    11. Green, Kesten C., 2002. "Forecasting decisions in conflict situations: a comparison of game theory, role-playing, and unaided judgement," International Journal of Forecasting, Elsevier, vol. 18(3), pages 321-344.
    12. John R. Hauser & Steven M. Shugan, 2008. "Commentary—Defensive Marketing Strategies," Marketing Science, INFORMS, vol. 27(1), pages 85-87, 01-02.
    13. Suman Basuroy & Dung Nguyen, 1998. "Multinomial Logit Market Share Models: Equilibrium Characteristics and Strategic Implications," Management Science, INFORMS, vol. 44(10), pages 1396-1408, October.
    14. Mesak, Hani I. & Calloway, James A., 1995. "A pulsing model of advertising competition: A game theoretic approach, part A -- Theoretical foundation," European Journal of Operational Research, Elsevier, vol. 86(2), pages 231-248, October.
    15. Kornelis, Marcel & Dekimpe, Marnik G. & Leeflang, Peter S.H., 2008. "Does competitive entry structurally change key marketing metrics?," International Journal of Research in Marketing, Elsevier, vol. 25(3), pages 173-182.
    16. Schuur, Peter & Badur, Bertan & Sencer, Asli, 2021. "An explicit Nash equilibrium for a market share attraction game," Operations Research Perspectives, Elsevier, vol. 8(C).
    17. Masaaki Kijima & Kei-Ichiro Nakagawa & Takashi Namatame, 2000. "Competitive Price Equilibrium with Consumer Reservation Utility," Computational and Mathematical Organization Theory, Springer, vol. 6(1), pages 7-27, May.

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