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Price-Induced Patterns of Competition

Author

Listed:
  • Robert C. Blattberg

    (University of Chicago)

  • Kenneth J. Wisniewski

    (A. C. Nielsen)

Abstract

This research focuses on how price changes influence the observed pattern of brand competition. The paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition. A price-tier model is proposed to operationalize the theory and to allow predictive testing. The price-tier model is estimated on 28 brands across four product categories. The results show a specific asymmetric pattern of price competition. Higher-price, higher quality brands steal share from other brands in the same price-quality tier, as well as from brands in the tier below. However, lower-price, lower-quality brands take sales from their own tier and the tier below brands, but do steal significant share from the tiers above. The results are consistent with a bimodal preference distribution, with the regular price indifference point being located toward the lower-quality end of the preference distribution for the categories analyzed.

Suggested Citation

  • Robert C. Blattberg & Kenneth J. Wisniewski, 1989. "Price-Induced Patterns of Competition," Marketing Science, INFORMS, vol. 8(4), pages 291-309.
    • Handle: RePEc:inm:ormksc:v:8:y:1989:i:4:p:291-309
    DOI: 10.1287/mksc.8.4.291
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