PRICE-INDUCED PATTERNS OF COMPETITION

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

Chapter 8 in Perspectives on Promotion and Database Marketing:The Collected Works of Robert C Blattberg, 2010, pp 125-143 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis 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 not 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: Quantitative Marketing; Tracker Model; Customer Level Data; Marketing-Mix Modeling (search for similar items in EconPapers)
JEL-codes: M31 (search for similar items in EconPapers)
Date: 2010
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