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Game Theory and Empirical Generalizations Concerning Competitive Promotions

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Author Info

  • Ram C. Rao

    (The University of Texas at Dallas)

  • Ramesh V. Arjunji

    (Yale University)

  • B. P. S. Murthi

    (The University of Texas at Dallas)

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    Abstract

    This paper offers the generalization that competitive promotions are mixed strategies. First an empirical regularity is established that promotions are independent across competitors. This regularity is then elaborated on in the context of a promotion game. The promotion game is linked to observable outcomes, and a classification of possible situations is developed. In particular, the classification includes the prisoners' dilemma, battle of the sexes, and marketing models of promotion competition. The evidence for the generalization comes from a variety of product markets, spanning trade promotions, retail price reductions, and retail promotions such as advertised specials. The product markets include coffee, baby diapers, toilet tissue, saltines, dishwashing fluid, ketchup, and detergents, among others. The data in some cases were from cooperating grocery chains and in others from IRI scanner panels. The evidence from extant research and from new analyses is presented. Each situation is identified as belonging to one or another element of the classification. Based on the entirety of the evidence, there is strong support for the proposition that competitive promotions are mixed strategies. A second generalization, based on more limited data, is that the depth of promotion has a bimodal distribution. Implications of the generalizations both for managerial practice and future research are discussed.

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    File URL: http://dx.doi.org/10.1287/mksc.14.3.G89
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 14 (1995)
    Issue (Month): 3_supplement ()
    Pages: G89-G100

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    Handle: RePEc:inm:ormksc:v:14:y:1995:i:3_supplement:p:g89-g100

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    Related research

    Keywords: promotions; game theory; mixed strategies; trade deals; pricing;

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    Citations

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    Cited by:
    1. Klapper, Daniel & Cooper, Lee G. & Hildebrandt, Lutz, 1999. "The congruence of theoretical and empirical patterns of inter-store price competition," SFB 373 Discussion Papers 1999,44, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    2. 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.
    3. Choi, Sungchul & Park, Sang-June & Qiu, Chun (Martin) & Stanyer, Mike, 2013. "The discount is unfair: Egocentric fairness in risky discounts," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 32-43.
    4. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    5. Sofia Berto Villas-Boas & J. Miguel Villas-Boas, 2008. "Learning, Forgetting, and Sales," Management Science, INFORMS, vol. 54(11), pages 1951-1960, November.
    6. Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.
    7. Srinivasan, S. & Pauwels, K.H. & Hanssens, D.M. & Dekimpe, M.G., 2002. "Do Promotions Benefit Manufacturers, Retailers or Both?," ERIM Report Series Research in Management ERS-2002-21-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    8. Kutsal Dogan & Ernan Haruvy & Ram Rao, 2010. "Who should practice price discrimination using rebates in an asymmetric duopoly?," Quantitative Marketing and Economics, Springer, vol. 8(1), pages 61-90, March.

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