Article ID: | iaor20071563 |
Country: | United Kingdom |
Volume: | 12 |
Issue: | 5 |
Start Page Number: | 509 |
End Page Number: | 526 |
Publication Date: | Sep 2005 |
Journal: | International Transactions in Operational Research |
Authors: | Anderson Chris K., Rasmussen Henning, MacDonald Leo |
Keywords: | finance & banking |
We model the temporal pricing strategies for two firms with asymmetric costs and differing market power (i.e. big-box retailer versus smaller local merchant). A firm's demand is a function of its price, a reference price and its competitor's price. Price effects may be asymmetric, i.e. consumers respond differently if they perceive a good to be over-priced versus under-priced. We derive analytical results for optimal prices. We show through a series of numerical examples under what settings firms choose various pricing strategies as well as profit implications for firms with differing costs.