Sales and Promotions: A More General Model
AbstractWe embed the Varian (1980) model in a broader setting that considers how switcher/loyal customer segments are determined. Generally, customer acquisition is deterministic while pricing is randomized. The equilibrium outcome depends on the timing of customer acquisition relative to pricing. If sellers acquire customers before setting prices, the unique equilibrium is asymmetric. If sellers acquire customers and set prices simultaneously, the unique equilibrium is symmetric. Our results provide a fundamental justification for previous analyses that variously assumed the outcome to be asymmetric or symmetric. The comparative statics for the asymmetric and symmetric equilibria are identical.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0508014.
Length: 21 pages
Date of creation: 30 Aug 2005
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competition; pricing; customer acquisition;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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