Lead in Competition

Hermann Simon and Adam Echter
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Hermann Simon: Simon-Kucher & Partners
Adam Echter: Simon-Kucher & Partners

Chapter 7 in Beating Inflation, 2023, pp 55-60 from Springer

Abstract: Abstract Competitor prices and behavior have a strong influence on a company’s own price management during inflation. The effect of competitor prices is realistically represented by a double-kinked price-response function. There is a monopolistic range within which price increases do not trigger large sales losses. However, if one exceeds the upper threshold, sales and most likely profits collapse sharply. Competitor price increases shift the price-response function, and hence the upper threshold, to the right. This function shape leads to a situation where several small price increases are less damaging to sales than one large price increase. In oligopolistic markets and under inflationary conditions, price leadership is particularly beneficial. Signaling can in principle be used before inflation-induced price increases but, because of the time required, it is less suitable than under price-stable conditions.

Date: 2023
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DOI: 10.1007/978-3-031-20093-9_7

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