Price reactions to new competition: A study of US luxury car market, 1986–1997

Yamawaki, Hideki

doi:10.1016/s0167-7187(00)00079-5

Cited by 43 publications

(26 citation statements)

References 24 publications

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“…While several studies have shown incumbent price reductions up to 3% with entry (Basker 2005, Hausman and Leibtag 2007, Basker and Noel 2009, other studies find that no reaction is also common (Ailawadi et al 2010). Yet another set of studies finds a positive effect of entry on prices (Thomas 1999, Yamawaki 2002. At the same time, it is unclear whether the predictions from this literature translate directly to the case of exits (the focus of our study) due to inherent differences between entering and exiting firms.…”

Section: Introductionmentioning

confidence: 77%

Price Reactions to Rivals’ Local Channel Exits

Ozturk

Venkataraman

2016

Marketing Science

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I n this paper, we study the effect of a firm's local channel exits on prices charged by incumbents remaining in the marketplace. Exits could result in higher prices due to tempered competition or lower prices due to reduced colocation or agglomeration benefits. The net effect of these two countervailing forces remains unknown. In addition, little is known about how this effect could change depending on incumbents' geographic locations. We address this research gap by examining new car price reactions by incumbent multiproduct automobile dealerships who experience the exit of a Chrysler dealership in their local markets. We find evidence that the competition effect exceeds the colocation effect: prices increase by about 1% ($318) following an exit relative to the price change in the absence of an exit. More important, we find that the price increase is lower at dealerships more proximate to the exiting dealership than dealerships farther away for the same set of cars available across these locations. This finding suggests differences in the extent of the two forces (competition and agglomeration) at different distances from the closed dealership. We assess the generalizability of our results by looking at the impact of GM's closure of Pontiac dealerships. Taken together, our results inform consumers, firms, and policymakers about possible implications of an exit.Data, as supplemental material, are available at http://dx.

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Section: Introductionmentioning

confidence: 77%

Price Reactions to Rivals’ Local Channel Exits

Ozturk

Venkataraman

2016

Marketing Science

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“…While most empirical studies examining incumbent responses to entry focus on tactical changes such as adjusting prices, quality levels or production capacity (e.g., Lieberman 1987;Yamawaki 2002;Frank and Salkever 2004;Simon 2005;Seamans 2009), our theoretical analysis generates several predications related to firms' strategic decisions. Reduced-form regressions are more amenable than structural estimation to testing these predications for a couple of reasons.…”

Section: Empirical Implicationsmentioning

confidence: 99%

Strategies to Fight Ad-Sponsored Rivals

2010

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We analyze the optimal strategy of a high-quality incumbent that faces a low-quality ad-sponsored competitor. In addition to competing through adjustments of tactical variables such as price or the number of ads a product carries, we allow the incumbent to consider changes in its business model. We consider four alternative business models, a subscription-based model, an ad-sponsored model, a mixed model in which the incumbent offers a product that is both subscription-based and ad-sponsored, and a dual model in which the incumbent offers two products, one based on the ad-sponsored model and the other based on the mixed business model. We show that the optimal response to an ad-sponsored rival often entails business model reconfigurations. We also find that when there is an ad-sponsored entrant, the incumbent is more likely to prefer to compete through the subscription-based or the ad-sponsored model, rather than the mixed or the dual model, because of cannibalization and endogenous vertical differentiation concerns. We discuss how our study helps improve our understanding of notions of strategy, business model, and tactics in the field of strategy.

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“…Geroski (1989) finds that entry increases profit margins earned by incumbents in 6% of the industries studied. Similarly, Perloff et al (1996), Ward et al (2002, Yamawaki (2002); Simon (2005); Goolsbee and Syverson (2008) and McCann and Vroom (2010) show that entry can lead to price increases in the pharmaceutical, consumer packaged goods, luxury car, magazine, airline and hotel industries, respectively.…”

Section: Empirical Relevancementioning

confidence: 99%