In contrast to the traditional approach that typically views entry solely as a threat, we argue that our understanding of this important phenomenon will remain incomplete until we consider the possibility that entry may also provide opportunity for incumbent firms. Drawing from agglomeration theory, which describes the benefit from colocating with competitors, we explicitly examine the combined…
In this article, the authors consider the problem of outlet pricing and location in the context of unobserved spatial demand. The analysis constitutes a scenario in which capacity-constrained firms set prices conditional on their location, demand, and costs. This enables firms to develop maps of latent demand patterns across the market in which they compete. The analysis further suggests locati…
Multipart pricing is commonly used by service providers such as car rentals, prescription drug plans, health maintenance organizations, and wireless telephony. The general structure of these pricing schemes is a fixed access fee, which sometimes entitles users to a certain level of product use; a variable fee for additional use; and still another fee for add-on features that are priced individu…
The authors develop a conceptual framework of the factors that motivate a retailer's decision to rely on demand conditions and past prices in setting current and future prices. Specifically, they examine the circumstances under which retailers choose demand-based pricing versus past-price dependence for different brands and categories. Given scarce resources and costs of price adjustments, dema…
Firms often use a pricing strategy in which the total price of a product and/or service is partitioned into two or more mandatory components. Whereas previous research has compared partitioned with nonpartitioned pricing, this article examines how partitioning the total price differently across the components affects consumer preferences. In four studies, the authors show that consumers' reacti…
Feedback effects from asset prices to firm cash flows have been empirically documented. This finding raises a question for asset pricing: How are asset prices determined if price affects fundamental value, which in turn affects price? In this environment, by buying assets that others are buying, investors ensure high future cash flows for the firm and subsequent high returns for themselves. Hen…
Multipart pricing is commonly used by service providers such as car rentals, prescription drug plans, health maintenance organizations, and wireless telephony. The general structure of these pricing schemes is a fixed access fee, which sometimes entitles users to a certain level of product use; a variable fee for additional use; and still another fee for add-on features that are priced individu…
The authors propose an econometric model of both the geographic locations of gasoline retailers in Singapore and price competition among retailers conditional on their geographic locations. Although market demand for gasoline is not observed, the authors are able to infer the effects of such demand from stations' locations and pricing decisions using available data on local market-level demogra…
In many services (e.g., the wireless service industry), consumers choose a service plan according to their expected consumption. In such situations, consumers experience two forms of uncertainty. First, they may be uncertain about the quality of their service provider and can learn about it after repeated use of the service. Second, they may be uncertain about their own usage of minutes and lea…
The authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state-dependent demand. Rather than assuming that firms are perfectly forward looking and therefore solving accordingly for dynamic equilibriums that would arise in the presence of state dependence, the authors systematically evaluate whether boundedly rational firms …
Previous research has shown that the monetary value of a promotion (promotion depth) affects choice during the promotion period. However, as promotion depth increases, consumers might lower their expectations of future price, which in turn may threaten future choice when prices return to normal levels. This research examines how promotion frame (percentage off versus cents off) moderates the ef…
The extant literature on retail category pricing optimization concentrates on grocery retailing. In contrast, this article focuses on the problem of determining profit-improving, store-level prices of failure-related "hard-part" product categories at a US specialty automotive part retailer with 3400 stores. Using two years of weekly sales histories from 800 stores, the authors develop store-lev…
Theoretical work on the pricing of information reveals that competition between information sellers can result in prices that are negatively related to the quality or reliability of the information. The goal of this study is to test empirically the theory's counterintuitive predictions with the help of an experimental market based on a business simulation. An important feature of the experiment…
etting prices to consumers is one of the most critical decisions for the retailer and a primary driver of retailer profitability. To increase profitability, retailers typically engage in some form of price discrimination. In this article, the authors compare the impact on retailer profitability from two price discrimination mechanisms: quantity discounts based on package size (second-degree pri…
Recent news coverage and commentary on gasoline prices, dynamic or smart pricing, or the pricing of pharmaceutical drugs reveals the importance of price fairness issues. How do consumers determine whether a price is unfair? What are the consequences to a firm that engages in perceived unfair pricing practices? The theoretical foundations of fairness have guided previous price fairness research …
In business-to-business marketing, managers are often tasked with developing effective global pricing strategies for customers characterized by different cultures and different utilities for product attributes. The challenges for formulating international pricing schedules are especially evident in global markets for service offerings, where intensive customer contact, extensive customization r…
Quantity surcharges occur when the unit price of a brand's larger package is higher than the unit price of the same brand's smaller package. The authors examine how price-setting practices in the grocery industry help explain the existence of quantity surcharges. Two studies support the authors' contention that common pricing practices aimed at establishing a favorable store-price image can res…
Reference price research suggests that consumers memorize and recall price information when selecting brands for frequently purchased products. Previous price-knowledge surveys, however, indicate that memory for prices is lower than expected. This study shows that these price-knowledge surveys provide imperfect estimates of price knowledge, because they focus only on recall and short-term memor…
Reference prices are the standards against which the a product's price is judged. Even though a firm's price may be competitive, consumers may perceive the price to be high relative to their reference point, causing them to reject the brand. Therefore, managing consumers' reference price is an important task. Although considerable research has been conducted on this topic, there is no comprehen…
The attribute-based approach to study customer choices cannot deal with bundles of heterogeneous components, which are usually drawn from different product categories. The comparability-based balance model is developed. The model can be employed for any bundle, regardless of the heterogeneity of bundle components, under a pure bundling strategy. Mixture distributions were used in a hierarchical…