Pricing management between partnering rivals: a coopetitive diffusion analysis

Abstract

This paper investigates a dynamic pricing strategy between competitive partners of national and private brands. To examine this pricing strategy, we model the behavioural interactions between the coopetitive parties through the S-shaped diffusion process using a Stackelberg differential game simulation. Our findings illustrate that even under conditions of demand mutualism, suppliers and retailers are financially better off when the price gap between their national and private brands is incrementally reduced throughout the product life cycle of these brands. Alternative strategies such as deterring rivals' entrance into a market through defensive pricing strategies thus appear suboptimal to our proposed gap reduction pricing strategy. All of this indicates that while a dominant coopetitive partner strives to retain its leading market position, it also has a vested interest in ensuring the survival of its cooperative partner.