Competitive Dealing Strategy and Deal Value Escalation

Cynthia Fraser and James L. Ginter
Additional contact information
Cynthia Fraser: Department of Marketing, Kansas State University, Manhattan, Kansas 66502
James L. Ginter: College of Business, Ohio State University, Columbus, Ohio 43210

Management Science, 1988, vol. 34, issue 11, 1315-1323

Abstract: This note is an extension of "A Mathematical Model for Price Promotions" (Kinberg, Rao and Shakun [Kinberg, Yoram, Ambar G. Rao, Melvin F. Shakun. 1974. A mathematical model for price promotions. Management Sci. 20 948--959.]). That paper derived the revenue maximizing deal value for a firm in a monopolistically competitive, price (quality) partitioned market having two premium brands and consumers whose responses to deals are heterogeneous. This "optimal" deal value was derived under the assumed condition of no competitive dealing. When competitive dealing was considered, both dealing brands were assumed to offer the same "optimal" deal value. By extending the work of KRS to include a number of competitors sufficiently large that at least one is dealing in each period, this paper shows that a reactive dealing strategy based on a single "optimal" deal value produces negative profits and will not produce a stable equilibrium.

Keywords: promotional strategy; pricing; stochastic decision-making (search for similar items in EconPapers)
Date: 1988
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