Duopolistic positioning and pricing competition with variety‐seeking and strategic consumers

Abstract

This paper examines a duopolistic market in which two firms compete on their positioning and pricing decisions. Consumers may be variety-seeking or non-variety-seeking, and strategic or myopic, in their repeated purchases. The competing firms first determine the positioning and then the prices in two selling periods under either price commitment or dynamic pricing. Contrary to the conventional wisdom that variety-seeking consumers are less profitable consumers, we find that firms may benefit from more variety-seeking consumers under either pricing scheme when some of these consumers are myopic. Strategic consumer behavior always intensifies the competition and hurts the firms. Under each pricing scheme, either myopic variety-seeking consumers or non-variety-seeking consumers can be the most profitable consumer group, while strategic variety-seeking consumers are always the least preferred consumer group. Compared with dynamic pricing, price commitment softens horizontal competition and increases profits. When the firms can choose freely between price commitment and dynamic pricing before they engage in pricing competition, they may adopt asymmetric pricing schemes in equilibrium.

Duopoly price competition with quality improvement spillover

“…Second, we further compare symmetric firms' equilibrium prices and profits under both committed and dynamic pricing schemes. When the strength of the spillover effect is large compared to the competition intensity level, committed pricing can help alleviate the price competition, and benefit the firms more than dynamic pricing does, which is consistent with the existing literature (Liu & Zhang, 2013; Shang et al, 2021; Wang & Hu, 2014). By contrast, when the quality spillover is weak, dynamic pricing scheme brings more profits for the duopoly, as firms can take advantage of the pricing flexibility and earn a high second‐period profit without sacrificing the first‐period profit for self quality improvement.…”

“…For example, dynamic pricing allows firms to make inter‐temporal changes to the posted price so that it is contingent to the evolving environment; committed pricing, on the other hand, could generally relax the competition and is relatively easy to implement. Depending on the practical situation, one strategy may outperform the other, as shown in several prior works in economics and operation management literature (Liu & Zhang, 2013; Shang et al, 2021; Wang & Hu, 2014). Here, we compare the duopoly pricing game under these two pricing schemes in the presence of the learning and quality improvement spillover.…”

“…They conclude that, compared to committed pricing, dynamic pricing may intensify the competition. Shang et al (2021) consider firms' positioning and pricing choices in the presence of variety‐seeking and strategic consumers, and show that price commitment softens horizontal competition and increases profits. There are several fundamental differences between our article and theirs.…”

“…Obviously, this pricing scheme endows firms with a level of flexibility that may be valued in a dynamic and competitive environment. In addition to being commonly observed in practice, both pricing schemes are also widely studied in the related literature (see, e.g., Liu & Zhang, 2013; Shang et al, 2021; Wang & Hu, 2014). In our setting, it is expected that different pricing schemes may have distinct impacts on competing firms' quality improvement and spillover.…”

Impact of Consumer Strategic Behavior on the Supplier Channel Selection in a Retailing Platform

“…Lin et al [31] found that manufacturers and retailers earn higher profts in the presence of strategic consumers in the view of holistic supply chain. In terms of recent pricing research considering strategic consumers, it has begun to capture the characteristics of supply chains under complex consumption scenarios, for instance, segmented market such as sharing economy [11] and low-carbon products [32], two-echelon newsvendor [33], purchase behaviors including repeat purchasing [34], defective product returns [12], and so forth. Tere are related articles exploring strategic consumers' impact in channel selection.…”