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Coordination of Price Promotions in Complementary Categories

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  • Maxim Sinitsyn

    (Department of Economics, University of California, San Diego, La Jolla, California 92093)

Abstract

In this paper, I investigate the outcome of a price competition between two firms, each producing two complementary products. Specifically, I study each firm's decision to coordinate price promotions of its products. Consumers are divided into loyals, who purchase both products from their preferred firm, and heterogeneous switchers, who choose between four possible bundles or buy a product in a single category. The switchers are willing to pay some price premium in order to purchase two complementary products that share the same brand name and are produced by the same firm, because they believe that these products are a better match than two complementary products with different brand names. I find that each firm predominantly promotes its complementary products together. This finding is correlationally supported by data in the shampoo and conditioner and in the cake mix and cake frosting categories. This paper was accepted by Pradeep Chintagunta, marketing.

Suggested Citation

  • Maxim Sinitsyn, 2012. "Coordination of Price Promotions in Complementary Categories," Management Science, INFORMS, vol. 58(11), pages 2076-2094, November.
    • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:11:p:2076-2094
    DOI: 10.1287/mnsc.1120.1538
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    References listed on IDEAS

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    Cited by:

    1. Zhisong Chen & Shong-Iee Ivan Su, 2021. "Consignment supply chain cooperation for complementary products under online to offline business mode," Flexible Services and Manufacturing Journal, Springer, vol. 33(1), pages 136-182, March.
    2. Karray, Salma & Sigué, Simon Pierre, 2015. "A game-theoretic model for co-promotions: Choosing a complementary versus an independent product ally," Omega, Elsevier, vol. 54(C), pages 84-100.
    3. Mantin, Benny & Rubin, Eran, 2018. "Price volatility and market performance measures: The case of revenue managed goods," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 120(C), pages 35-50.
    4. Otero, Daniel F. & Escallón, Mariana & López, Cristina & Akhavan-Tabatabaei, Raha, 2019. "Optimal timing of airline promotions under dilution," European Journal of Operational Research, Elsevier, vol. 277(3), pages 981-995.
    5. Maxim Sinitsyn, 2020. "Evaluating horizontal mergers in the presence of price promotions," Quantitative Marketing and Economics (QME), Springer, vol. 18(1), pages 39-60, March.
    6. Mao Yuan & Shi‐hua Ma & Xu Guan & Ying‐Ju Chen, 2021. "Channel configuration in a complementary market under different power structures," Naval Research Logistics (NRL), John Wiley & Sons, vol. 68(2), pages 157-158, March.
    7. Mark Armstrong & John Vickers, 2023. "Multibrand Price Dispersion," Economics Series Working Papers 1029, University of Oxford, Department of Economics.
    8. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    9. Marco Giarratana & Alessandra Perri, 2014. "Product and Marketing Actions in a Competitive Scenario," Working Papers 30, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.
    10. Yoonju Han & Sandeep R. Chandukala & Hai Che, 2017. "Exchange and refund of complementary products," Marketing Letters, Springer, vol. 28(1), pages 113-125, March.
    11. Sinitsyn, Maxim, 2022. "Price leadership with promotions," International Journal of Industrial Organization, Elsevier, vol. 82(C).

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