Price-Induced Patterns of Competition

Robert C. Blattberg and Kenneth J. Wisniewski
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Robert C. Blattberg: University of Chicago
Kenneth J. Wisniewski: A. C. Nielsen

Marketing Science, 1989, vol. 8, issue 4, 291-309

Abstract: This research focuses on how price changes influence the observed pattern of brand competition. The paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition. A price-tier model is proposed to operationalize the theory and to allow predictive testing. The price-tier model is estimated on 28 brands across four product categories. The results show a specific asymmetric pattern of price competition. Higher-price, higher quality brands steal share from other brands in the same price-quality tier, as well as from brands in the tier below. However, lower-price, lower-quality brands take sales from their own tier and the tier below brands, but do steal significant share from the tiers above. The results are consistent with a bimodal preference distribution, with the regular price indifference point being located toward the lower-quality end of the preference distribution for the categories analyzed.

Keywords: promotional analyses; market structure models; price competition (search for similar items in EconPapers)
Date: 1989
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Citations: View citations in EconPapers (148)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:8:y:1989:i:4:p:291-309

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