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Targeted Pricing and Vertical Structure

Author

Listed:
  • Ryo Masuyama

    (Graduate School of Economics and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)

Abstract

Targeted pricing is an aggressive strategy to steal demand from rivals. Therefore, it is believed that firms should employ it. However, targeted pricing has rarely been observed. There is a gap between our perceptions in the literature on targeted pricing and reality. This study demonstrates the negative aspects of targeted pricing by considering supply chain competition. When a rival supply chain is vertically separated, targeted pricing lowers the rival’s input price and intensifies competition. Conversely, when the rival firm is vertically integrated, this effect does not occur. Therefore, a firm should confirm its rival's vertical structure when deciding whether to employ targeted pricing.

Suggested Citation

  • Ryo Masuyama, 2025. "Targeted Pricing and Vertical Structure," Discussion Paper Series DP2025-13, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-13
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-13.pdf
    File Function: First version, 2024
    Download Restriction: no
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    More about this item

    Keywords

    Targeted pricing; Uniform pricing; Vertical structure; Supply chain management; Hotelling model;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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