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Technical Note--Price Promotions in Asymmetric Duopolies with Heterogeneous Consumers

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  • Maxim Sinitsyn

    () (Department of Economics, McGill University, Montreal, Quebec H3A 2T7, Canada)

Abstract

In this note I investigate the outcome of a static price competition between a strong firm (a firm with an established loyal consumer base) and a weak firm (a firm without loyal consumers). The consumers are divided into the strong firm's loyal segment and the switching segment, members of which have heterogeneous tastes for the firms' products. In the presence of loyal consumers, for a large set of the parameters of the demand function, the firms use mixed strategies over a finite number of prices. These strategies can be interpreted as occurrences of sales. The most common case is that of the strong firm's using two prices and the weak firm's using one price. However, when both firms use sales, the weak firm promotes more often than the strong firm.

Suggested Citation

  • Maxim Sinitsyn, 2008. "Technical Note--Price Promotions in Asymmetric Duopolies with Heterogeneous Consumers," Management Science, INFORMS, vol. 54(12), pages 2081-2087, December.
  • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:12:p:2081-2087
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    File URL: http://dx.doi.org/10.1287/mnsc.1080.0931
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    References listed on IDEAS

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    1. Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
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    3. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
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    6. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
    7. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 27-41.
    8. 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.
    9. 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.
    10. 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.
    11. Deneckere, Raymond J & Kovenock, Dan & Lee, Robert, 1992. "A Model of Price Leadership Based on Consumer Loyalty," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 147-156, June.
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    Citations

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    Cited by:

    1. Kai A.Konrad, 2010. "Merger Profitability in Industries with Brand Portfolios and Loyal Customers," Korean Economic Review, Korean Economic Association, vol. 26, pages 5-26.
    2. Hunold, Matthias & Muthers, Johannes, 2018. "Spatial Competition with Capacity Constraints and Subcontracting," DICE Discussion Papers 254, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Katja Seim & Michael Sinkinson, 2016. "Mixed pricing in online marketplaces," Quantitative Marketing and Economics (QME), Springer, vol. 14(2), pages 129-155, June.
    4. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    5. Maxim Sinitsyn, 2012. "Coordination of Price Promotions in Complementary Categories," Management Science, INFORMS, vol. 58(11), pages 2076-2094, November.
    6. Hunold, Matthias & Hüschelrath, Kai & Laitenberger, Ulrich & Muthers, Johannes, 2017. "Competition, collusion and spatial sales patterns: Theory and evidence," ZEW Discussion Papers 17-035, ZEW - Leibniz Centre for European Economic Research.
    7. repec:eee:transe:v:120:y:2018:i:c:p:35-50 is not listed on IDEAS
    8. 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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