Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?
Cornell University - Samuel Curtis Johnson Graduate School of Management
Naufel J. Vilcassim
London Business School
Pradeep K. Chintagunta
University of Chicago
JOURNAL OF BUSINESS, Vol. 69, No. 4, October 1996
Researchers have recently developed models for determining which market conduct best describes observed data. We apply these techniques from the "new empirical industrial organization" literature to the competitive product line pricing decision, where a firm strategically prices its brands when determining the profit-maximizing conduct in the market. Demand, cost, and market structure are estimated endogenously. Empirical results from analyzing price competition in the laundry detergent market between Procter and Gamble selling Tide and EraPlus, and Lever Brothers offering Wisk and Surf, indicate that each firm positions its strong brand as a Stackelberg leader, with the rival's minor brand being the follower.
JEL Classification: L11, L13, L81
Date posted: May 4, 1998