Price‐Informative Advertising in Australia (original) (raw)

Market Structure and Competition

This paper, prepared for an EUI workshop on cartels in 1993, outlines the development of the economic analysis of competitive markets and the way in which economists sought to deal with the problem of oligopoly before 1950

The price of competitiveness in competitive pricing

Journal of the Academy of Marketing Science, 1997

This study examines how pricing decisions might be improved. We test the hypothesis that managers have a tendency to overcompete by comparing the performance of managers with the performance of computerized strategies in a Prisoner's Dilemma pricing experiment. We find that the subjects in our study obtain lower profits than matched computer strategies. The subjects appear to value relative performance against competitors, even when they are explicitly instructed to maximize profits and are compensated based on profits. The implication for managers is that pricing to maximize profits may require tolerating the strong performance of competitors, even to the point of accepting a lower profit than some or all the competitors. If competitiveness means an adversarial, "zero-sum game" view of one's competitors, then the price of competitiveness in competitive markets such as those in our experiment may be lower profits. Being less competitive may be more profitable.

Price Discrimination and Product Line Rivalry

In this paper we consider a model of oligopolistic competition where firms make a two-dimensional product line decision. They choose a location in style space, thus, inducing horizontal differentiation, and produce different qualities (a product line) of a given good (vertical differentiation), consumed by a population of customers who differ in their income and preference for style. We prove existence of a non-cooperative equilibrium and show that, as the degree of competition increases, prices approach marginal cost. The approach is used to show that European car producers seem indeed to use product lines to discriminate across EU countries.

Price Competition and Advertising Signals: Signaling by Competing Senders

Journal of Economics & Management Strategy, 2001

Can price and advertising be used by vertically differentiated duopolists to signal qualities to consumers? We show that pure price separation is impossible if the vertical differentiation is small, while adding dissipative advertising ensures existence of separating equilibria. Two simple, but nonstandard, equilibrium refinements are introduced to deal with the multi-sender nature of the game, and they are shown to produce a unique separating and a unique pooling profile. Pooling results in a zero-profit Bertrand outcome. Separation gives strictly positive duopoly profits, and dissipative advertising is used by the high-quality firm when products are sufficiently close substitutes. Finally, compared to the complete information benchmark, the separating prices of both firms are distorted upwards when the degree of vertical differentiation is large, while they are distorted downwards when it is small.

Price Competition Under Limited Comparability

The Quarterly Journal of Economics, 2012

This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modeling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. In particular, firms earn max-min payoffs in symmetric equilibria if and only if the graph that represents the comparability between formats satisfies a generalized regularity property, which we interpret as a form of "frame neutrality". The same property is necessary for equilibrium behavior to display statistical independence between price and format decisions. We also show that narrow regulatory interventions that aim to facilitate comparisons may have an anti-competitive effect.

The many faces of competition

1998

Despite a great deal of theoretical research on competition, there has been limited empirical work assessing the type of competitive interaction that actually exists in the marketplace. The empirical work that has been conducted has suggested that there is significant variation in the type of competitive interaction across categories and across marketing instruments. Consequently, the central objective of this paper is descriptive in naturewhat does competition look like? Focusing on the competition that exists across strategic groups (Porter 1985), we categorize competitive interaction between private labels and national brands for each of 58 categories and four marketing instruments. Specifically, we look at five types of competitive interaction. Three, cooperative, non-cooperative, and independent (Nash) are symmetric in nature, while two, leader-follower (Stackelberg) and dominant/fringe-firm, are asymmetric.

The Impact of Competition on Prices with Numerous Firms Recommended Citation The Impact of Competition on Prices with Numerous Firms The Impact of Competition on Prices with Numerous Firms

2013

We use extreme value theory (EVT) to develop insights about price theory. Our analysis reveals "detail-independent" equilibrium properties that characterize a large family of models. We derive a formula relating equilibrium prices to the level of competition. When the number of …rms is large, markups are proportional to 1= nF 0 F 1 (1 1=n) , where F is the random utility noise distribution and n is the number of …rms. This implies prices are pinned down by the tail properties of the noise distribution and that prices are independent of many other institutional details. The elasticity of the markup with respect to the number of …rms is shown to be the EVT tail exponent of the distribution for preference shocks and in most leading cases is relatively insensitive to the number of …rms. For example, for the Gaussian case asymptotic markups are proportional to 1= p ln n, implying a zero asymptotic elasticity of the markup with respect to the number of …rms. Thus competition onl...