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Sales and Promotions: A More General Model

  • Il-Horn Hann

    (University of Southern California)

  • Kai-Lung Hui

    (National University of Singapore)

  • Sang-Yong Tom Lee

    (Hanyang University)

  • Ivan P.L. Png

    (National University of Singapore)

We embed the Varian (1980) model in a broader setting that considers how switcher/loyal customer segments are determined. Generally, customer acquisition is deterministic while pricing is randomized. The equilibrium outcome depends on the timing of customer acquisition relative to pricing. If sellers acquire customers before setting prices, the unique equilibrium is asymmetric. If sellers acquire customers and set prices simultaneously, the unique equilibrium is symmetric. Our results provide a fundamental justification for previous analyses that variously assumed the outcome to be asymmetric or symmetric. The comparative statics for the asymmetric and symmetric equilibria are identical.

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Paper provided by EconWPA in its series Industrial Organization with number 0508014.

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Length: 21 pages
Date of creation: 30 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0508014
Note: Type of Document - pdf; pages: 21
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