Competitive Pricing by a Price Leader
AbstractWe examine the problem of pricing in a market where one brand acts as a price leader. We develop a procedure to estimate a leader's price rule, which is optimal given a sales target objective, and allows for the inclusion of demand forecasts. We illustrate our estimation procedure by calibrating this optimal price rule for both the leader and the follower using data on past sales and prices from the mid-size sedan segment of the U.S. automobile market. Our results suggest that a leader-follower system (Stackelberg) seems more consistent with the pricing behavior in this market, than a mutually independent pricing rule (Nash). We also find that our optimal price rule explains this market data better than other pricing schemes that do not account for optimizing behavior on the part of the leader and the follower.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 40 (1994)
Issue (Month): 7 (July)
marketing: competitive strategy; pricing; games: noncooperative; sequential;
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- Cleeren, K & Dekimpe, Marnik & Verboven, Frank, 2005.
"Intra- and inter-channel competition in local-service sectors,"
Open Access publications from Katholieke Universiteit Leuven
urn:hdl:123456789/228418, Katholieke Universiteit Leuven.
- Cleeren, K. & Dekimpe, M.G. & Verboven, F., 2005. "Intra- and Inter-Channel Competition in Local-Service Sectors," Research Paper ERS-2005-018-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.
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- Abhik Roy & Jagmohan Raju, 2011. "The influence of demand factors on dynamic competitive pricing strategy: An empirical study," Marketing Letters, Springer, vol. 22(3), pages 259-281, September.
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