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Sales and Promotions: A More General Model

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Author Info

  • Il-Horn Hann

    (University of Southern California)

  • Kai-Lung Hui

    (National University of Singapore)

  • Sang-Yong Tom Lee

    (Hanyang University)

  • Ivan P.L. Png

    (National University of Singapore)

Abstract

We 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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File URL: http://128.118.178.162/eps/io/papers/0508/0508014.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0508014.

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Length: 21 pages
Date of creation: 30 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0508014

Note: Type of Document - pdf; pages: 21
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Web page: http://128.118.178.162

Related research

Keywords: competition; pricing; customer acquisition;

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References

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Citations

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Cited by:
  1. Il-Horn Hann & Kai-Lung Hui & Sang-Yong Tom Lee & Ivan Png, 2005. "Consumer Privacy and Marketing Avoidance," Industrial Organization 0503009, EconWPA.
  2. Bing Jing, 2007. "Product differentiation under imperfect information: When does offering a lower quality pay?," Quantitative Marketing and Economics, Springer, vol. 5(1), pages 35-61, March.

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