Advanced Search
MyIDEAS: Login

Investigating Behavioral Explanations for Asymmetric Price Competition

Contents:

Author Info

  • Makoto Abe

    (Faculty of Economics, University of Tokyo)

Registered author(s):

    Abstract

    Asymmetric price competition in consumer packaged goods is a well-known phenomenon. Researchers have proposed three behavioral explanations: (1) heterogeneity in consumer preference, (2) the income effect, and (3) the reference and loss-aversion effects. These explanations have been offered independently by different researchers using different types of data with different methodology. Despite the interest in asymmetric price competition by the marketing community, no attempt has been made to compare across the three explanations and draw an inference on which one is most likely. The objectives of this paper are three-folds. Firstly, important factors when studying asymmetric price competition are discussed. These include, (1) confounding of the supply-side and demand-side factors when analyzing aggregate data, such as market share, and (2) an appropriate measure for asymmetric price competition as the change in market share of a brand for a unit price change of a competing brand. Second, based on these considerations, theoretical arguments against previous explanations are provided. (1) The Heterogeneity Effect: Aggregate data is analyzed and cross-price elasticity is used. The explanation is inferred indirectly. (2) Income effect: Infinite divisibility of goods is assumed. (3) Loss-aversion effect: Household heterogeneity is not well accounted for. These claims are then supported empirically using scanner-panel data from four categories. Third, an alternative explanation is proposed to show that a basic assumption of consumer utility in Microeconomic theory, the diminishing-marginal-return effect in price, results in asymmetric competition. It was shown that the concavity (i.e., the diminishing-marginal-return effect) in price was stronger than that of logarithm in all four product categories.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2001/2001cf125.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-125.

    as in new window
    Length: 55 pages
    Date of creation: Jul 2001
    Date of revision:
    Handle: RePEc:tky:fseres:2001cf125

    Contact details of provider:
    Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
    Phone: +81-3-5841-5644
    Fax: +81-3-5841-8294
    Email:
    Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2001cf125. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.