Showing papers on "Dynamic pricing published in 1993"

Inter-firm rivalry and firm-specific price elasticities in deregulated airline markets.

Abstract: Since deregulation in 1978 the US airline industry has undergone major structural changes. A series of mergers and hub-and-spoke network development have increased market concentration at major airports as well as at industry level. The industry is still being consolidated. Analysts express concern regarding the increasing market power of a few airlines, especially in route markets connected to major hub airports. There is clear evidence that major US airlines attempt to solidify their market power by intensif ying hub and-spoke networks, offering commission overrides to travel agents (a system that rewards agents for directing a high proportion of their business to an airline), using skilful dynamic pricing and seat allocation techniques (scientific yield management) and frequent-flyer bonus programmes for rewarding brand-loyal customers. A large number of routes are served by three or fewer airlines, indicating that a small numbers oligopoly is the dominant market structure in the industry, particularly on the routes directly connected to major hubs. Furthermore, recent evidence shows that dominant airlines at hub airports have sustained higher average fares for the local traffic than their competitors (see Borenstein,1989, 1990; and Berry, 1992). This suggests the importance of understanding competitive interaction among airlines in order to explain their pricing behaviour and price differentials between airlines serving the same route markets.

Dynamic Pricing in Retail Gasoline Markets

Abstract: This paper tests for price patterns in retail gasoline markets consistent with those predicted by models of implicit collusion among firms. Recent supergame models show that the highest supportable collusive price is a function of today's profit relative to expected future profit: collusive prices are higher when predictable changes in demand or cost lead firms to expect that collusive profits are increasing rather than declining. Ceteris paribus, collusive profits will be expected to increase when demand is expected to increase and/or costs are expected to decline. Using panel data on sales volume, and retail and wholesale prices in 59 cities over 72 months, we find results consistent with these predictions. Controlling for current demand and input price, the elasticity of current retail margins with respect to expected next-month demand is about 0.37. The elasticity of current margins with respect to next-month wholesale price is about -0.37. The results are inconsistent with inventory effects.

Dynamic Pricing in Retail Gazoline Markets

Abstract: This paper tests for price patterns in retail gasoline markets consistent with those predicted by models of implicit collusion among firms Recent supergame models show that the highest supportable collusive price is a function of today's profit relative to expected future profit: collusive prices are higher when predictable changes in demand or cost lead firms to expect that collusive profits are increasing rather than declining Ceteris paribus, collusive profits will be expected to increase when demand is expected to increase and/or costs are expected to decline Using panel data on sales volume, and retail and wholesale prices in 59 cities over 72 months, we find results consistent with these predictions Controlling for current demand and input price, the elasticity of current retail margins with respect to expected next-month demand is about 037 The elasticity of current margins with respect to next-month wholesale price is about -037 The results are inconsistent with inventory effects

Equilibrium pricing and advertising strategies for nondurable experience products in a dynamic duopoly

Abstract: The quality of many consumer nondurable goods or services is sufficiently complex or obscure that consumers cannot completely verify the true quality in a single usage. For such ‘experience’ products or services, the accumulated consumer consumption experience of a brand is an important determinant of its sales or market share. The market share of a brand is in turn directly influenced by its own and the competitive price and advertising strategies, given the different levels of quality (among other factors). In this paper, we investigate the impact of the aggregate consumption experience on the firm's dynamic pricing and advertising strategies by developing a formal game-theoretic model of a dynamic duopoly. The model of competition does not yield explicit closed-form expressions for the dynamic price and advertising paths of the two firms. Hence, we simulate the equilibrium paths using a discrete-time algorithm. Our simulation results provide interesting insights into the dynamic equilibrium price and advertising paths, under a variety of realistic competitive scenarios.

Chapter 11 Pricing models in marketing

Abstract: Publisher Summary This chapter brings together a set of diverse efforts in the recent literature on the modeling of price decisions and related questions in marketing. There has been an impressive growth in the array of topics investigated in the literature. Various trends in the development of pricing models are evident from the foregoing review. First, one trend has been to develop theoretical models to describe observed pricing strategies in the marketplace and to derive conditions under which certain strategies are optimal. This trend is clearly evident when one considers the area of dynamic pricing models. Another trend is an attempt to develop pricing models in which certain aspects of consumer behavior (e.g asymmetric response to price increases versus price decreases) are incorporated. This development is quite recent and does offer a large potential. A third dominant direction is the use of game-theoretic models for developing equilibrium pricing strategies.