Firm-Level Competition in Price and Variety

Timothy J. Richards and Paul M. Patterson

Journal of Agricultural and Applied Economics, 2006, vol. 38, issue 3, 491-512

Abstract: Consumer product manufacturers often compete in dynamic, multi-firm oligopolies using multiple strategic tools. While existing empirical models of strategic interaction typically consider only parts of the more general problem, this paper presents a more comprehensive alternative. Marketing decisions are dynamically optimal, consistent with optimal consumer choice, and responsive to rival decisions. Using a single-market case study that consists of five years of four-weekly data on ready-to-eat cereal sales, prices, and new brand introductions, we test several hypotheses regarding the nature of strategic interaction among several rival manufacturers. We find that cereal manufacturers price and introduce new brands cooperatively in the same period, but behave more competitively when dynamic reactions are included.

Date: 2006
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