Joseph, Joy (2005): Competitive Pricing Analysis in Mature & Evolving Markets A Time Series Approach.
Download (1MB) | Preview
Competitive behavior between players in a mature market can have a different structure than those in growing markets. Pricing component of the marketing mix is less relied upon to expand market share in growing markets, while there is a greater reliance upon product differentiation and building stronger brand equity. On the other hand, in mature markets, there is usually very little scope for product differentiation, so there is a greater reliance on pricing for competitive gains. Since market share expansion in a mature market comes directly from competitive sales declines, pricing strategy changes in one brand leads to a fairly instantaneous reaction from other brands in the category and retail prices in general reflect the equilibrium condition of consumption. This paper applies methods from Time Series Econometrics to identify nonstationary behavior and long-run equilibrium of retail prices of brands in mature and evolving markets. The results indicate that long-run equilibrium in prices may be an outcome of the maturity of markets, as the persistence of the shocks in the prices do not result in the persistence in shocks to sales. The cointegrating condition created by the intense price competition imposes a stationarity restriction on sales, hence eliminating the possibility of any long term pricing strategy and pricing becomes tactical.
|Item Type:||MPRA Paper|
|Original Title:||Competitive Pricing Analysis in Mature & Evolving Markets A Time Series Approach|
|Keywords:||Competitive, Pricing, Dynamics, Cointegration, Unit Roots, Retail|
|Subjects:||C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||Joy V Joseph|
|Date Deposited:||12. Mar 2008 01:43|
|Last Modified:||12. Feb 2013 09:40|
Charles I. Plosser and G. William Schwert, 1977. “Estimation of a Non-Invertible Moving Average Process, The Case of Overdifferencing”. Broadbent, S. (1979) “One way T.V. advertisements work”, Journal of the Market Research Society, 21, 13 9-166. Dekimpe, M. and Hanssens, D. M., 1995, “Empirical Generalizations About Market Evolution and Stationarity”, Marketing Science Vol. 14 No. 3 Part 2 of 2, 1995. Dekimpe, M., Hanssens, D. M., Silva-Risso, J., 1999, “Long-run Effects of Price Promotions in Scanner Markets”, Journal of Econometrics 89 (1999) 269-291. “Applied Econometric Time Series”, Second Edition, Walter Enders, Wiley 2003, pg. 213-214 Engle, R. F. & Granger, C. W. J. (1987). “Co-Integration and Error Correction: Representation, Estimation and Testing”. Econometrica, Vol. 55, No. 2, 251-276. Granger C. W. J. & Newbold, P. (1974). “Spurious Regressions in Econometrics”. Journal of Econometrics 2, 111-120. Johansen, S. (1988), "Statistical Analysis of Cointegration Vectors," Journal of Economic Dynamics and Control, 12, 231 -254. Johansen, S. and Juselius, K. (1990), "Maximum Likelihood Estimation and Inference on Cointegration: With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, 52, 169 - 210. Joseph, Joy V, 2004, "Non-Stationarity Effects in Causal Sales Forecasting Models" http://ssrn.com/abstract=655923 Pauwels, K. and Hanssens, D. M., 2004, “Performance Regimes and Marketing Policy Shifts”, Working Paper. Phillips, P.C.B. (1986). “Understanding Spurious Regressions In Econometrics”. Journal of Econometrics 33, 311-340.