Mixed pricing in oligopoly

Shilony, Yuval

doi:10.1016/0022-0531(77)90137-5

Cited by 214 publications

(136 citation statements)

References 4 publications

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“…Some researchers have proposed a sharper distinction, that consumers can perfectly distinguish prices that are significantly different but choose randomly between similar prices. Shilony (1977) characterizes equilibrium in such a model where prices are deemed similar if they differ by less than a constant d. 12 This formulation leads to a mixed strategy equilibrium, but otherwise the same conclusion that consumer confusion about price rankings supports positive markups. Others take the same approach at the individual level but assume that the threshold for two prices to be similar varies continuously across consumers, switch to tariffs that raise their bills without necessarily being dominated.…”

Section: Models Of Price Confusion and Price Obfuscationmentioning

confidence: 99%

“…Several models discussed in Section 3 assume that consumers who cannot compare prices choose randomly between options (Shilony, 1977;Allen and Thisse, 1992;Bachi, 2014;Piccione and Spiegler, 2012;Chioveanu and Zhou, 2013;Bachi and Spiegler, 2014). A natural dynamic interpretation of these static models is that the confused consumers do not choose randomly, but rather avoid making an active choice by keeping the default option and not switching.…”

Section: Inertiamentioning

confidence: 99%

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Failing to Choose the Best Price: Theory, Evidence, and Policy

Grubb

2015

Rev Ind Organ

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Both the "law of one price" and Bertrand's (1883) prediction of marginal cost pricing for homogeneous goods rest on the assumption that consumers will choose the best price. In practice, consumers often fail to choose the best price because they search too little, become confused comparing prices, and then show excessive inertia through too little switching away from past choices or default options. This is particularly true when price is a vector rather than a scalar, and consumers have limited experience in the relevant market. All three mistakes may contribute to positive markups that fail to diminish as the number of competing sellers increases. Firms may have an incentive to exacerbate these problems by obfuscating prices, thereby using complexity to make price comparisons difficult and soften competition. Possible regulatory interventions include simplifying the choice environment, for instance by restricting price to be a scalar, advising consumers of their expected costs under each option, or choosing on behalf of consumers. * Boston College, michael.grubb@bc.edu, https://www2.bc.edu/michael-grubb/. I am grateful to Mark Armstrong, Ben Handel, and Rani Spiegler for careful reading and many helpful comments on an earlier draft. I also thank Vera Sharunova for her excellent research assistance.

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Section: Models Of Price Confusion and Price Obfuscationmentioning

confidence: 99%

Section: Inertiamentioning

confidence: 99%

Failing to Choose the Best Price: Theory, Evidence, and Policy

Grubb

2015

Rev Ind Organ

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“…Much of the extant literature on price promotion/dispersion (Shilony 1977, Varian 1980, Narasimhan 1988, Raju et al 1990, Rao 1991) proposes a static model to explain price dispersion, both contemporaneous and intertemporal. Specifically, these studies show that there is no equilibrium in pure strategies.…”

Section: Literature Reviewmentioning

confidence: 99%

“…There is a rich literature in both economics and marketing that views price promotions as a mixed strategy equilibrium (Shilony 1977, Varian 1980, Narasimhan 1988, Raju et al 1990, Rao 1991. The scant empirical work that examines whether price promotions are consistent with the mixed strategy interpretation has largely focused on testing whether price distributions of competing products exhibit independence (Rao et al 1995).…”

Section: Introductionmentioning

confidence: 99%

Consumer Stockpiling and Competitive Promotional Strategies

2014

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A n examination of brand prices in several categories reveals that the distribution of prices is multimodal, with firms offering shallow and deep discounts. Another interesting feature of these distributions is that they may have holes in the interior of the support. These pricing distributions do not occur in extant theoretical models of price promotions. We develop a dynamic model of competition in which some price-sensitive consumers stockpile during periods of deep discounts. A game-theoretic analysis of our model generates a multimodal pricing distribution with a hole in the interior of the support. Consumer stockpiling in our model also gives rise to negative serial correlation in prices. This is consistent with our empirical observation of the pricing distribution of several brands across multiple categories in the IRI marketing data set.We generate several interesting insights into firms' optimal promotional strategies and their interplay with the clientele mix, market structure, and other market factors. We find that, in equilibrium, stockpiling by pricesensitive consumers neither harms nor benefits firms when they adopt equilibrium strategies. Interestingly, when price-sensitive consumers stockpile, even increased consumption as a result of stockpiling does not lead to higher profits for firms.

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“…Other authors have argued that firms may use sales to price discriminate between high valuation-high inventory costs and low valuation-low inventory costs consumers (e.g., Blattberg et al 1981, Jeuland andNarasimhan 1985). 3 Another explanation that has been presented relies on different price information by consumers, or a discrete number of segments with different preferences across products, to generate mixed price strategy equilibria in competition, which can be interpreted as sales (e.g., Shilony 1977, Varian 1980, Rosenthal 1980. 4 There is also a literature explaining sales in durable goods through the existence of generations of consumers coming into the market every period, and where sales are offered to sell to the accumulated stock of low-valuation consumers who wait for a sale (e.g., Conlisk et al 1984, Sobel 1991, and a literature on competition with homogeneous switching costs, where equilibrium stochastically time-dependent prices can also be interpreted as sales (e.g., Padilla 1995, Anderson et al 2004.…”

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confidence: 99%

Learning, Forgetting, and Sales

Villas-Boas

2008

Management Science

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S ellers of almost any product or service rarely keep their prices constant through time and frequently offer price discounts or sales. This paper investigates an explanation of sales as a way for uninformed consumers to be willing to experience the product, and learn about its fit, and where informed consumers may forget about (or change) their preferences. We investigate the role of the rate of consumer forgetting on the timing between sales, and of the rate of consumer learning and menu costs on the length of a sale. The rate of consumer forgetting can be linked to the length of purchase cycle and the level of consumer involvement. We show that the discount frequency and the discount depth are increasing in the rate of consumer forgetting, and that the discount frequency is increasing in the learning rate. The duration of a sale is increasing in the rate of consumer forgetting and the rate of consumer learning.

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Mixed pricing in oligopoly

Cited by 214 publications

References 4 publications

Failing to Choose the Best Price: Theory, Evidence, and Policy

Failing to Choose the Best Price: Theory, Evidence, and Policy

Consumer Stockpiling and Competitive Promotional Strategies

Learning, Forgetting, and Sales

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