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Competitive Pricing Analysis in Mature & Evolving Markets A Time Series Approach

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  • Joseph, Joy

Abstract

Competitive behavior between players in a mature market can have a different structure than those in growing markets. Pricing component of the marketing mix is less relied upon to expand market share in growing markets, while there is a greater reliance upon product differentiation and building stronger brand equity. On the other hand, in mature markets, there is usually very little scope for product differentiation, so there is a greater reliance on pricing for competitive gains. Since market share expansion in a mature market comes directly from competitive sales declines, pricing strategy changes in one brand leads to a fairly instantaneous reaction from other brands in the category and retail prices in general reflect the equilibrium condition of consumption. This paper applies methods from Time Series Econometrics to identify nonstationary behavior and long-run equilibrium of retail prices of brands in mature and evolving markets. The results indicate that long-run equilibrium in prices may be an outcome of the maturity of markets, as the persistence of the shocks in the prices do not result in the persistence in shocks to sales. The cointegrating condition created by the intense price competition imposes a stationarity restriction on sales, hence eliminating the possibility of any long term pricing strategy and pricing becomes tactical.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7685.

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Date of creation: 17 Jun 2005
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Handle: RePEc:pra:mprapa:7685

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Related research

Keywords: Competitive; Pricing; Dynamics; Cointegration; Unit Roots; Retail;

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  1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  2. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 757, Cowles Foundation for Research in Economics, Yale University.
  3. G. Dekimpe, Marnik & Hanssens, Dominique M. & Silva-Risso, Jorge M., 1998. "Long-run effects of price promotions in scanner markets," Journal of Econometrics, Elsevier, Elsevier, vol. 89(1-2), pages 269-291, November.
  4. Plosser, Charles I. & Schwert, G. William, 1977. "Estimation of a non-invertible moving average process : The case of overdifferencing," Journal of Econometrics, Elsevier, Elsevier, vol. 6(2), pages 199-224, September.
  5. Dekimpe, M.G. & Hanssens, D., 1995. "Empirical generalizations about market evolution and stationarity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-358840, Tilburg University.
  6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  7. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 2(2), pages 111-120, July.
  8. Marnik G. Dekimpe & Dominique M. Hanssens, 1995. "Empirical Generalizations About Market Evolution and Stationarity," Marketing Science, INFORMS, INFORMS, vol. 14(3_supplem), pages G109-G121.
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