Segmented switchers and retailer pricing strategies

Empirical studies reveal a surprisingly wide variety of price promotion strategies among retailers, even among Internet sellers of undifferentiated homogenous goods such as books and music CD’s. Several empirical findings remain puzzling, particularly that within the same market some small retailers decide to deeply discount, while other small retailers forgo the price-sensitive switchers and price high to play their niche. We present theoretical and empirical analyses that address these varied pricing strategies. Our model of three asymmetric firms shows that under multiple switcher segments, where different switchers compare prices at different retailers, firm-specific loyalty is not sufficient to explain the variety of retailer pricing strategies. We demonstrate that a retailer’s pricing strategy is driven by the ratio of the size of switcher segments for which the retailer competes to its loyal segment size. The relative switcher-to-loyal ratios among retailers explain when a firm is more or less inclined to discount deeply or frequently. We thereby identify when a small firm finds it optimal to play the niche and price high, despite having few loyals, or to discount and go for the switchers. Our analysis reveals several interesting findings, such as a small firm that benefits from strategically limiting its access to switchers. The results of two empirical studies confirm our model’s predictions for varied retailer pricing strategies in the context of Internet booksellers

Cemal Gürsel'i anarken

Taha Toros Arşivi, Dosya No: 113-Cemal Gürsel. Not: Gazetenin "Olaylar ve Görüşler" köşesinde yayımlanmıştır.Unutma İstanbul projesi İstanbul Kalkınma Ajansı'nın 2016 yılı "Yenilikçi ve Yaratıcı İstanbul Mali Destek Programı" kapsamında desteklenmiştir. Proje No: TR10/16/YNY/010

Theory and evidence on pricing by asymmetric oligopolies

We present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good, such as software, music, book or a brand-name appliance. We show that two forms of asymmetry, one related to loyal segment sizes of retailers and one related to the positioning of firms, completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers. The stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers

Cemal Gürsel'i anarken

Taha Toros Arşivi, Dosya No: 113-Cemal Gürsel. Not: Gazetenin "Olaylar ve Görüşler" köşesinde yayımlanmıştır.Unutma İstanbul projesi İstanbul Kalkınma Ajansı'nın 2016 yılı "Yenilikçi ve Yaratıcı İstanbul Mali Destek Programı" kapsamında desteklenmiştir. Proje No: TR10/16/YNY/010

A model of Internet pricing under price-comparison shopping

An empirical regularity in the price-promotion behavior of retailers of homogenous goods is explained theoretically. Based on this, a model is proposed for price competition in a market for a homogenous good with many asymmetrically positioned retailers. Asymmetry in this context refers to firms having potentially dissimilar loyal and switcher customer numbers that shape their pricing behavior in on-line markets. Incomplete information on the size of these segments results in distinguishable clusters of indistinguishable firms. To analyze these markets, a static game of price competition is developed and solved in an asymmetric oligopoly with numerous clusters of firms. The firms with the smallest ratio of switcher segment size to loyal segment size engage in fierce price competition, whereas the members of all other groups price their goods at reservation price points with no price promotions. This observation is a unique contribution and challenges the perception that all firms in markets for homogenous goods adopt mixed pricing strategies

Segmented Switchers and Retailer Pricing Strategies

Empirical studies reveal a surprisingly wide variety of pricing strategies among retailers, even among Internet sellers of undifferentiated homogeneous goods, such as books and music CDs. Several empirical findings remain puzzling; for example, within the same market, some small retailers decide to discount deeply, whereas others forgo the price-sensitive switchers and price high. The authors present theoretical and empirical analyses that address these varied pricing strategies. A model of three asymmetric firms shows that under multiple switcher segments, in which different switchers compare prices at different retailers, firm-specific loyalty is not sufficient to explain the variety of pricing strategies. The authors demonstrate that a retailer's strategy to discount deeply or frequently is driven by the ratio of the size of switcher segments for which the retailer competes to its loyal segment size. The relative switcher-to-loyal ratios among retailers explain situations in which a small retailer finds it optimal to price high, despite having few loyals, or to discount and go for the switchers. The results of two empirical studies confirm the model's predictions for varied pricing strategies in the context of Internet booksellers. The analyses also present several implications. A small retailer can sometimes benefit from strategically limiting its access to switchers to soften price competition. A midsized retailer can benefit from targeting its switcher acquisition activities toward its larger rival, given the shallower discounts involved. When most switchers widely compare prices, a large retailer should offer few shallow discounts because other firms will more aggressively discount. The importance of switcher segmentation suggests that managers should carefully measure switching behavior in devising pricing strategies

Intermediate notions of rationality for simple allocation problems

In this study, we interpret solution rules on a class of simple allocation problems as data on the choices of a policy-maker. We analyze conditions under which the policy maker's choices are (i) rational on a partition (ii) transitiverational on a partition. In addition we introduce two new rationaltiy notions: (i) Constant Proportion rationality,(ii) Constant Distance Rationality. Our main results are as follows: (i) if the elements of a partition is closed under coordinate-wise minimum or coordinate-wise maximum operatation, then a well known property in the literature, contraction independence (a.k.a. IIA) is equivalent to rationality on that partition; (ii) if the characteristics vectors falling into the same element of a partition is ordered Weak Axiom of Revealed Preferences (WARP) is equivalent to transitive rationality