IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v31y2013i5p404-416.html
   My bibliography  Save this article

Price promotions in emerging markets

Author

Listed:
  • Mathur, Sameer
  • Sinitsyn, Maxim

Abstract

How should price promotion strategies be modified in an emerging market (e.g., India, China) compared to those employed in developed markets (e.g., USA, Canada)? Specifically, how should the presence of middle-class consumers with limited ability to pay, prevalent in an emerging market, influence the depth and frequency of price promotions offered by competing firms? Lay intuition suggests that firms should promote more frequently and offer deeper discounts in emerging markets, in order to effectively sell to limited income, middle-class consumers. We construct a theoretical model that investigates the effect of the middle-class segment on firms' price promotion strategies. Contrary to lay intuition, our analysis reveals precisely the opposite results. First, price promotions offered in an emerging market (with middle-class consumers) are shallower than those offered in a developed market (without middle-class consumers). Second, relatively deep price promotions occur less frequently in an emerging market, compared to a developed market. These theoretical findings are consistent with the empirical evidence we gathered from the supermarkets in India and in Canada.

Suggested Citation

  • Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.
  • Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:404-416
    DOI: 10.1016/j.ijindorg.2013.07.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718713000751
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lal, Rajiv & Villas-Boas, J Miguel, 1996. "Exclusive Dealing and Price Promotions," The Journal of Business, University of Chicago Press, vol. 69(2), pages 159-172, April.
    2. Sinitsyn, Maxim, 2008. "Characterization of the support of the mixed strategy price equilibria in oligopolies with heterogeneous consumers," Economics Letters, Elsevier, vol. 99(2), pages 242-245, May.
    3. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
    4. Huang Rui & Perloff Jeffrey M & Villas-Boas Sofia B, 2006. "Effects of Sales on Brand Loyalty," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 4(1), pages 1-26, July.
    5. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    6. Ram C. Rao & Ramesh V. Arjunji & B. P. S. Murthi, 1995. "Game Theory and Empirical Generalizations Concerning Competitive Promotions," Marketing Science, INFORMS, vol. 14(3_supplem), pages 89-100.
    7. Rajiv Lal & J. Miguel Villas-Boas, 1998. "Price Promotions and Trade Deals with Multiproduct Retailers," Management Science, INFORMS, vol. 44(7), pages 935-949, July.
    8. Kocas, Cenk & Kiyak, Tunga, 2006. "Theory and evidence on pricing by asymmetric oligopolies," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 83-105, January.
    9. Rajiv Lal & John D. C. Little & J. Miguel Villas-Boas, 1996. "A Theory of Forward Buying, Merchandising, and Trade Deals," Marketing Science, INFORMS, vol. 15(1), pages 21-37.
    10. Chen, Yongmin & Zhang, Tianle, 2011. "Equilibrium price dispersion with heterogeneous searchers," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 645-654.
    11. Wilfred Amaldoss & Woochoel Shin, 2011. "Competing for Low-End Markets," Marketing Science, INFORMS, vol. 30(5), pages 776-788, September.
    12. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
    13. Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
    14. Michael R. Baye & John Morgan, 2009. "Brand and Price Advertising in Online Markets," Management Science, INFORMS, vol. 55(7), pages 1139-1151, July.
    15. Ram C. Rao, 1991. "Pricing and Promotions in Asymmetric Duopolies," Marketing Science, INFORMS, vol. 10(2), pages 131-144.
    16. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
    17. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
    18. Sinitsyn, Maxim, 2009. "Price dispersion in duopolies with heterogeneous consumers," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 197-205, March.
    19. Villas-Boas, J Miguel, 1995. "Models of Competitive Price Promotions: Some Empirical Evidence from the Coffee and Saltine Crackers Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 85-107, Spring.
    20. Maxim Sinitsyn, 2008. "Technical Note--Price Promotions in Asymmetric Duopolies with Heterogeneous Consumers," Management Science, INFORMS, vol. 54(12), pages 2081-2087, December.
    21. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Mixed strategies; Price promotions; Price competition; Emerging markets;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:404-416. 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: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.