Journal Article

Coordination of Price Promotions in Complementary Categories

Sinitsyn, Maxim

2012

Overview

In this paper, I investigate the outcome of a price competition between two firms, each producing two complementary products. Specifically, I study each firm's decision to coordinate price promotions of its products. Consumers are divided into loyals, who purchase both products from their preferred firm, and heterogeneous switchers, who choose between four possible bundles or buy a product in a single category. The switchers are willing to pay some price premium in order to purchase two complementary products that share the same brand name and are produced by the same firm, because they believe that these products are a better match than two complementary products with different brand names. I find that each firm predominantly promotes its complementary products together. This finding is correlationally supported by data in the shampoo and conditioner and in the cake mix and cake frosting categories. This paper was accepted by Pradeep Chintagunta, marketing.

• Publisher: INFORMS,Institute for Operations Research and the Management Sciences
• Subject: Applied sciences / Brand loyalty / Brand names / Brands / Cake decorating / Classification / Competition / Competition (Economics) / complementary products / Consumer behavior / Consumer behaviour / Consumers / Coordination / Discounts / Exact sciences and technology / Firm modelling / Firm theory / heterogeneous consumers / Icings / Konsumentenverhalten / Management science / Marketing / Methods / Modeling / Operational research and scientific management / Operational research. Management science / Preiswettbewerb / price promotions / Price wars / Prices / Pricing / Produktmanagement / Reservation prices / Sales promotions / Shampoo / Studies / U.S.A / Verkaufsförderung / Willingness to pay / Zahlungsbereitschaftsanalyse