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Variable Pricing in Oligopoly Markets

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  • Frank Bass

    (University of Texas at Dallas)

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    Abstract

    Behavioral research has found that consumers respond to variability in prices in addition to price levels. We show that this finding can explain why some firms vary their prices more frequently than others. We examine pricing strategies composed of an average price and price variability and employ logit market share models to analyze equilibrium pricing strategies in an oligopoly. Two competing logit specifications termed price sensitivity and payoff sensitivity are considered and are shown to yield contradictory implications for pricing policy. From three empirical studies on restaurant choice, we find that the price sensitivity model is the better model.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 79 (2006)
    Issue (Month): 6 (November)
    Pages: 2789-2810

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    Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:6:p:2789-2810

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Mantin, Benny & Gillen, David, 2011. "The hidden information content of price movements," European Journal of Operational Research, Elsevier, vol. 211(2), pages 385-393, June.

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