IDEAS home Printed from https://ideas.repec.org/p/zbw/cauman/364.html
   My bibliography  Save this paper

Experiments in competitive product positioning: An equilibrium analysis

Author

Listed:
  • Marks, Ulf G.
  • Albers, Sönke

Abstract

Almost all of the results on competitive product positioning derived in respective literature so far are based fimdamentally on the hypothesis that Nash-equilibria are "accurate predictions" of final market configurations. If the positioning behavior of firms differs from this assumed Nash-behavior, the corresponding propositions can no longer be used for optimal product positioning. In order to test the Nash-reaction hypothesis we used a newly developed marketing Simulation game PRODSTRAT to observe decisions of 240 advanced marketing students on product position, price and marketing budget under market conditions varied experimentally. Our results show that pricing and budgeting decisions are very well described by Nash-equilibria in the case of fixed product positions, while decisions on product positioning are significantly more competitive. The experiments have led to less differentiated market configurations with the consequence of increasing pricing as well as budgeting competition and significantly reduced profits. The rather more aggressive product positioning observed here seems to stem from attempts to reduce profit differences relative to the market leader and from strategies to lower the risk of possible profit losses in case of competitors' attacks. Aggressive positioning behavior compared to corresponding Nash-behavior was particularly observed in duopolistic markets, in markets with unimodal ideal point distributions and under market conditions with a low quality effect on consumers' preferences. However, deviations from Nash-behavior can only partly be explained by market conditions and seem to depend substantially on the personality of the respective competitors.

Suggested Citation

  • Marks, Ulf G. & Albers, Sönke, 1995. "Experiments in competitive product positioning: An equilibrium analysis," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 364, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
  • Handle: RePEc:zbw:cauman:364
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/149830/1/manuskript_364.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alberts, William W, 1984. "Do Oligopolists Earn "Noncompetitive" Rates of Return?," American Economic Review, American Economic Association, vol. 74(4), pages 624-632, September.
    2. de Palma, Andre & Ginsburgh, Victor & Thisse, Jacques-Francois, 1987. "On Existence of Location Equilibria in the 3-Firm Hotelling Problem," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 245-252, December.
    3. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-248, March.
    4. Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, vol. 80(1), pages 218-233, March.
    5. Grether, David M & Plott, Charles R, 1984. "The Effects of Market Practices in Oligopolistic Markets: An Experimental Examination of the Ethyl Case," Economic Inquiry, Western Economic Association International, vol. 22(4), pages 479-507, October.
    6. S. Chan Choi & Wayne S. Desarbo & Patrick T. Harker, 1992. "Note---A Numerical Approach to Deriving Long-Run Equilibrium Solutions in Spatial Positioning Models," Management Science, INFORMS, vol. 38(1), pages 75-86, January.
    7. Brown-Kruse, Jamie & Cronshaw, Mark B & Schenk, David J, 1993. "Theory and Experiments on Spatial Competition," Economic Inquiry, Western Economic Association International, vol. 31(1), pages 139-165, January.
    8. Dan Horsky & Paul Nelson, 1992. "New Brand Positioning and Pricing in an Oligopolistic Market," Marketing Science, INFORMS, vol. 11(2), pages 133-153.
    9. S. Chan Choi & Wayne S. Desarbo & Patrick T. Harker, 1990. "Product Positioning Under Price Competition," Management Science, INFORMS, vol. 36(2), pages 175-199, February.
    10. Ruth N. Bolton, 1989. "The Relationship Between Market Characteristics and Promotional Price Elasticities," Marketing Science, INFORMS, vol. 8(2), pages 153-169.
    11. Asim Ansari & Nicholas Economides & Avijit Ghosh, 1994. "Competitive Positioning in Markets with Nonuniform Preferences," Marketing Science, INFORMS, vol. 13(3), pages 248-273.
    12. repec:ulb:ulbeco:2013/1759 is not listed on IDEAS
    13. Beckman, Steve, 1989. "Producer's dilemma experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 11(1), pages 27-46, January.
    14. K. Ravi Kumar & D. Sudharshan, 1988. "Defensive Marketing Strategies: An Equilibrium Analysis Based on Decoupled Response Function Models," Management Science, INFORMS, vol. 34(7), pages 805-815, July.
    15. Mason, Charles F & Phillips, Owen R & Nowell, Clifford, 1992. "Duopoly Behavior in Asymmetric Markets: An Experimental Evaluation," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 662-670, November.
    16. de Palma, A, et al, 1985. "The Principle of Minimum Differentiation Holds under Sufficient Heterogeneity," Econometrica, Econometric Society, vol. 53(4), pages 767-781, July.
    17. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    18. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1987. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 379-398, June.
    19. R. Mark Isaac & Stanley S. Reynolds, 1988. "Appropriability and Market Structure in a Stochastic Invention Model," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 647-671.
    20. Wayne DeSarbo & Vithala R. Rao, 1986. "A Constrained Unfolding Methodology for Product Positioning," Marketing Science, INFORMS, vol. 5(1), pages 1-19.
    21. Gregory S. Carpenter, 1989. "Perceptual Position and Competitive Brand Strategy in a Two-Dimensional, Two-Brand Market," Management Science, INFORMS, vol. 35(9), pages 1029-1044, September.
    22. Davis, Douglas D. & Holt, Charles A., 2008. "The Exercise of Market Power in Laboratory Experiments," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 17, pages 138-145, Elsevier.
    23. Mark J. Roberts & Larry Samuelson, 1988. "An Empirical Analysis of Dynamic, Nonprice Competition in an Oligopolistic Industry," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 200-220, Summer.
    24. Graitson, Dominique, 1982. "Spatial Competition a la Hotelling: A Selective Survey," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 13-25, September.
    25. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    26. Eiselt, H. A. & Laporte, G., 1989. "Competitive spatial models," European Journal of Operational Research, Elsevier, vol. 39(3), pages 231-242, April.
    27. John B. Van Huyck & Raymond C. Battalio & Richard O. Beil, 1991. "Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 885-910.
    28. John R. Hauser, 1988. "Note—Competitive Price and Positioning Strategies," Marketing Science, INFORMS, vol. 7(1), pages 76-91.
    29. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
    30. Roth, Alvin E, 1988. "Laboratory Experimentation in Economics: A Methodological Overview," Economic Journal, Royal Economic Society, vol. 98(393), pages 974-1031, December.
    31. J. W. Friedman, 1969. "On Experimental Research in Oligopoly," Review of Economic Studies, Oxford University Press, vol. 36(4), pages 399-415.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
    2. S. Sajeesh, 2016. "Influence of market-level and inter-firm differences in costs on product positioning and pricing," Applied Economics Letters, Taylor & Francis Journals, vol. 23(12), pages 888-896, August.
    3. John R. Hauser & Felix Eggers & Matthew Selove, 2019. "The Strategic Implications of Scale in Choice-Based Conjoint Analysis," Marketing Science, INFORMS, vol. 38(6), pages 1059-1081, November.
    4. Byong‐Duk Rhee & André de Palma & Claes Fornell & Jacques‐François Thisse, 1992. "Restoring The Principle Of Minimum Differentiation In Product Positioning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 475-505, September.
    5. Régis Deloche, 1995. "Expérimentation, science économique et théorie des jeux : "Nunc est bibendum" ," Revue Économique, Programme National Persée, vol. 46(3), pages 951-960.
    6. Van Huyck, John B. & Cook, Joseph P. & Battalio, Raymond C., 1997. "Adaptive behavior and coordination failure," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 483-503, April.
    7. Bloch, Francis & Manceau, Delphine, 1999. "Persuasive advertising in Hotelling's model of product differentiation," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 557-574, May.
    8. Borenstein, Severin & Netz, Janet, 1999. "Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 611-640, July.
    9. Konstantinos Georgalos & Indrajit Ray & Sonali SenGupta, 2020. "Nash versus coarse correlation," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1178-1204, December.
    10. Wilfred Amaldoss & Richard Staelin, 2010. "Cross-Function and Same-Function Alliances: How Does Alliance Structure Affect the Behavior of Partnering Firms?," Management Science, INFORMS, vol. 56(2), pages 302-317, February.
    11. Keser, Claudia & Suleymanova, Irina & Wey, Christian, 2012. "Technology adoption in markets with network effects: Theory and experimental evidence," Information Economics and Policy, Elsevier, vol. 24(3), pages 262-276.
    12. Giovanna Devetag & Andreas Ortmann, 2007. "When and why? A critical survey on coordination failure in the laboratory," Experimental Economics, Springer;Economic Science Association, vol. 10(3), pages 331-344, September.
    13. Nicolas Jacquemet & Stéphane Luchini & Jason F. Shogren & Adam Zylbersztejn, 2018. "Coordination with communication under oath," Experimental Economics, Springer;Economic Science Association, vol. 21(3), pages 627-649, September.
    14. Francesco Feri & Bernd Irlenbusch & Matthias Sutter, 2010. "Efficiency Gains from Team-Based Coordination—Large-Scale Experimental Evidence," American Economic Review, American Economic Association, vol. 100(4), pages 1892-1912, September.
    15. Hanaki, Nobuyuki & Tanimura, Emily & Vriend, Nicolaas J., 2019. "The Principle of Minimum Differentiation revisited: Return of the median voter," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 145-170.
    16. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    17. Mak, Vincent & Zwick, Rami, 2010. "Investment decisions and coordination problems in a market with network externalities: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 759-773, December.
    18. Bonein, Aurélie & Turolla, Stéphane, 2017. "Spatial competition with demand uncertainty: A laboratory experiment," Working Papers 266260, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    19. Buechel, Berno & Roehl, Nils, 2015. "Robust equilibria in location games," European Journal of Operational Research, Elsevier, vol. 240(2), pages 505-517.
    20. Vladimir Marianov & H. A. Eiselt, 2016. "On agglomeration in competitive location models," Annals of Operations Research, Springer, vol. 246(1), pages 31-55, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:cauman:364. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/ibkiede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/ibkiede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.