Sales and Promotions: A More General Model

21 Pages Posted: 30 Aug 2005

See all articles by Il-Horn Hann

Il-Horn Hann

University of Maryland - Decision and Information Technologies Department

Kai-Lung Hui

National University of Singapore (NUS) - School of Computing

Sang-Yong Tom Lee

Hanyang University - School of Business

Ivan P. L. Png

National University of Singapore (NUS)

Date Written: August 2005

Abstract

We embed the Varian (1980) model in a broader setting that considers how switcher/loyal customer segments are determined. Generally, customer acquisition is deterministic while pricing is randomized. The equilibrium outcome depends on the timing of customer acquisition relative to pricing. If sellers acquire customers before setting prices, the unique equilibrium is asymmetric. If sellers acquire customers and set prices simultaneously, the unique equilibrium is symmetric. Our results provide a fundamental justification for previous analyses that variously assumed the outcome to be asymmetric or symmetric. The comparative statics for the asymmetric and symmetric equilibria are identical.

Keywords: Competition, pricing, customer acquisition

JEL Classification: D44, L12, L14, M37

Suggested Citation

Hann, Il-Horn and Hui, Kai-Lung and Lee, Sang-Yong Tom and Png, Ivan P. L., Sales and Promotions: A More General Model (August 2005). Available at SSRN: https://ssrn.com/abstract=792945 or http://dx.doi.org/10.2139/ssrn.792945

Il-Horn Hann

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4313 Van Munching Hall
College Park, MD 20815
United States

Kai-Lung Hui

National University of Singapore (NUS) - School of Computing ( email )

Department of Information Systems
3 Science Drive 2
Singapore 117543
+65 874 4483 (Phone)
+65 779 4580 (Fax)

Sang-Yong Tom Lee

Hanyang University - School of Business ( email )

17 Haegdang-dong
Seongdong-ku
Seoul, 133-791
Korea

Ivan P. L. Png (Contact Author)

National University of Singapore (NUS) ( email )

Singapore, 117543
Singapore
+65 6516-6807 (Phone)

HOME PAGE: http://sites.google.com/site/iplpng/

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