IDEAS home Printed from https://ideas.repec.org/p/zwi/fpcrep/086.html
   My bibliography  Save this paper

Strategic Pricing in a Differentiated Product Oligopoly Model: Fluid Milk in Boston

Author

Listed:
  • Canan, Basak
  • Cotterill, Ronald W.

Abstract

In an imperfectly competitive industry, differentiated products compete with each other with price rather than quantity as the strategic variable. Several previous studies have employed a generalized Nash Bertrand model: Liang (1989), Cotterill (1994), Cotterill, Putsis and Dhar (2000), and Kinoshita, Suzuki, Kawamura, Watanabe and Kaiser (2001); however, only Liang has explored the theoretical foundations of that model. This paper generalizes the Liang two good model to three goods. A surprising and important result follows. Price conjectural variations do not exist in models with 3 or more goods. Price reaction functions, however, exist in multiple good models. We estimate them jointly with a brand level demand system to evaluate the total impact of a brand manager?s price change on own quantity. In a differentiated product market this is a useful addition to a partial demand elasticity approach because a change in one brand?s price typically engenders a price reaction by other brands which affects own quantity via substantial cross price elasticities among substitutes. Strategic pricing in the Boston fluid milk market was also influenced by the existence of a raw milk price support program, the Northeast Dairy Compact. We find that the advent of the Compact was a focal point event that crystallized a shift away from Nash Bertrand to more cooperative pricing. If the downstream market is not competitive one needs to consider strategic price reactions when designing and evaluating agricultural price programs. Key Words: oligopoly, price conjectural variations, brand level demand elasticities, focal point collusion

Suggested Citation

  • Canan, Basak & Cotterill, Ronald W., 2005. "Strategic Pricing in a Differentiated Product Oligopoly Model: Fluid Milk in Boston," Food Marketing Policy Center Research Reports 086, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  • Handle: RePEc:zwi:fpcrep:086
    as

    Download full text from publisher

    File URL: http://fmpc.uconn.edu/publications/rr/rr86.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," The Journal of Business, University of Chicago Press, vol. 73(1), pages 109-137, January.
    2. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-966, September.
    3. Jerry Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annals of Economics and Statistics, GENES, issue 34, pages 143-157.
    4. Gasmi, F. & Vuong, Q.H., 1988. "An Econometric Analysis Of Some Duopolistic Games In Prices And Advertising," Papers m8903, Southern California - Department of Economics.
    5. Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-528, Fall.
    6. Ronald W. Cotterill & Tirtha Pratim Dhar, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Food Marketing Policy Center Research Reports 074, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    7. repec:adr:anecst:y:1994:i:34 is not listed on IDEAS
    8. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities For Demand And Competitive Strategy Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 23(2), October.
    9. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
    10. Baker, Jonathan B & Baresnahan, Timothy F, 1985. "The Gains from Merger or Collusion in Product-differentiated Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 427-444, June.
    11. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities for Demand and Competitive Strategy Analysis," Agricultural and Resource Economics Review, Cambridge University Press, vol. 23(02), pages 125-139, October.
    12. Junko Kinoshita & Nobuhiro Suzuki & Tamotsu Kawamura & Yasuhito Watanabe & Harry M. Kaiser, 2001. "Estimating own and cross brand price elasticities, and price-cost margin ratios using store-level daily scanner data," Agribusiness, John Wiley & Sons, Ltd., vol. 17(4), pages 515-525.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:zwi:journl:v:41:y:2012:i:1:p:1-11 is not listed on IDEAS
    2. repec:eco:journ1:2017-03-79 is not listed on IDEAS
    3. Elena Lopez & Rigoberto A. Lopez, 2009. "Demand for differentiated milk products: implications for price competition," Agribusiness, John Wiley & Sons, Ltd., vol. 25(4), pages 453-465.
    4. Foxall, Gordon R. & Yan, Ji & Oliveira-Castro, Jorge M. & Wells, Victoria K., 2013. "Brand-related and situational influences on demand elasticity," Journal of Business Research, Elsevier, vol. 66(1), pages 73-81.
    5. Cotterill, Ronald W., 2012. "The Evolution of Quantitative Food Marketing Policy: A Public Perspective," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(1), April.

    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:zwi:fpcrep:086. 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: http://edirc.repec.org/data/dauctus.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 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.

    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.