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Game Theory and Empirical Generalizations Concerning Competitive Promotions

Author

Listed:
  • Ram C. Rao

    (The University of Texas at Dallas)

  • Ramesh V. Arjunji

    (Yale University)

  • B. P. S. Murthi

    (The University of Texas at Dallas)

Abstract

This paper offers the generalization that competitive promotions are mixed strategies. First an empirical regularity is established that promotions are independent across competitors. This regularity is then elaborated on in the context of a promotion game. The promotion game is linked to observable outcomes, and a classification of possible situations is developed. In particular, the classification includes the prisoners' dilemma, battle of the sexes, and marketing models of promotion competition. The evidence for the generalization comes from a variety of product markets, spanning trade promotions, retail price reductions, and retail promotions such as advertised specials. The product markets include coffee, baby diapers, toilet tissue, saltines, dishwashing fluid, ketchup, and detergents, among others. The data in some cases were from cooperating grocery chains and in others from IRI scanner panels. The evidence from extant research and from new analyses is presented. Each situation is identified as belonging to one or another element of the classification. Based on the entirety of the evidence, there is strong support for the proposition that competitive promotions are mixed strategies. A second generalization, based on more limited data, is that the depth of promotion has a bimodal distribution. Implications of the generalizations both for managerial practice and future research are discussed.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormksc:v:14:y:1995:i:3_supplement:p:g89-g100
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    File URL: http://dx.doi.org/10.1287/mksc.14.3.G89
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    Citations

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    Cited by:

    1. Surendra Rajiv & Shantanu Dutta & Sanjay K. Dhar, 2002. "Asymmetric Store Positioning and Promotional Advertising Strategies: Theory and Evidence," Marketing Science, INFORMS, pages 74-96.
    2. repec:ebl:ecbull:eb-17-00155 is not listed on IDEAS
    3. Vincent R. Nijs & Shuba Srinivasan & Koen Pauwels, 2007. "Retail-Price Drivers and Retailer Profits," Marketing Science, INFORMS, vol. 26(4), pages 473-487, 07-08.
    4. Jan-Benedict E. M. Steenkamp & Vincent R. Nijs & Dominique M. Hanssens & Marnik G. Dekimpe, 2005. "Competitive Reactions to Advertising and Promotion Attacks," Marketing Science, INFORMS, vol. 24(1), pages 35-54, September.
    5. Vincent R. Nijs & Marnik G. Dekimpe & Jan-Benedict E.M. Steenkamps & Dominique M. Hanssens, 2001. "The Category-Demand Effects of Price Promotions," Marketing Science, INFORMS, vol. 20(1), pages 1-22, September.
    6. Harald J. van Heerde & Peter S. H. Leeflang & Dick R. Wittink, 2004. "Decomposing the Sales Promotion Bump with Store Data," Marketing Science, INFORMS, vol. 23(3), pages 317-334, December.
    7. Yuxin Chen & Ganesh Iyer & Amit Pazgal, 2010. "Limited Memory, Categorization, and Competition," Marketing Science, INFORMS, vol. 29(4), pages 650-670, 07-08.
    8. Klapper, Daniel & Cooper, Lee G. & Hildebrandt, Lutz, 1999. "The congruence of theoretical and empirical patterns of inter-store price competition," SFB 373 Discussion Papers 1999,44, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    9. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market," Working Papers 2004-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    10. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    11. Randolph E. Bucklin & Sunil Gupta, 1999. "Commercial Use of UPC Scanner Data: Industry and Academic Perspectives," Marketing Science, INFORMS, vol. 18(3), pages 247-273.
    12. Ram C. Rao & Niladri Syam, 2001. "Equilibrium Price Communication and Unadvertised Specials by Competing Supermarkets," Marketing Science, INFORMS, pages 61-81.
    13. Csilla Horváth & Dennis Fok, 2013. "Moderating Factors of Immediate, Gross, and Net Cross-Brand Effects of Price Promotions," Marketing Science, INFORMS, vol. 32(1), pages 127-152, July.
    14. Kutsal Dogan & Ernan Haruvy & Ram Rao, 2010. "Who should practice price discrimination using rebates in an asymmetric duopoly?," Quantitative Marketing and Economics (QME), Springer, vol. 8(1), pages 61-90, March.
    15. Sofia Berto Villas-Boas & J. Miguel Villas-Boas, 2008. "Learning, Forgetting, and Sales," Management Science, INFORMS, vol. 54(11), pages 1951-1960, November.
    16. Choi, Sungchul & Park, Sang-June & Qiu, Chun (Martin) & Stanyer, Mike, 2013. "The discount is unfair: Egocentric fairness in risky discounts," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 32-43.
    17. Sridhar Moorthy, 2005. "A General Theory of Pass-Through in Channels with Category Management and Retail Competition," Marketing Science, INFORMS, vol. 24(1), pages 110-122, August.
    18. Srinivasan, S. & Pauwels, K.H. & Hanssens, D.M. & Dekimpe, M.G., 2002. "Do Promotions Benefit Manufacturers, Retailers or Both?," ERIM Report Series Research in Management ERS-2002-21-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    19. Venkatesh Shankar & Ruth N. Bolton, 2004. "An Empirical Analysis of Determinants of Retailer Pricing Strategy," Marketing Science, INFORMS, vol. 23(1), pages 28-49, May.
    20. Wilfred Amaldoss & Sanjay Jain, 2002. "David vs. Goliath: An Analysis of Asymmetric Mixed-Strategy Games and Experimental Evidence," Management Science, INFORMS, vol. 48(8), pages 972-991, August.
    21. Guyt, Jonne, 2015. "Consumer choice models on the effect of promotions in retailing," Other publications TiSEM c310f652-d725-4764-aac7-b, Tilburg University, School of Economics and Management.
    22. Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.

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