Implications and effectiveness of iterated pricing games in the Brazilian retail market

Retail pricing is often a complex non–zero sum, iterated game played by both analytically sophisticated businesses and strategically primitive ones. Game theory can help retailers avoid, survive, and win pricing wars – but it is undoubtedly not a trivial endeavour. This paper analyses how a tit for tat pricing strategy can be successfully utilised against multiple opponents through an example drawn from the Brazilian gasoline retail market. Although ultimately successful, the pricing strategy adopted by oil companies cost them approximately $15m per year in forgone profits or $214,000 per gas station. A relatively high price to pay in a small countryside city in Brazil.