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Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice

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  • Roman Inderst
  • Martin Obradovits
Abstract
How should firms optimally choose prices and promotional strategies and how should they position their products when consumers are "relative thinkers"? We provide answers in a model that extends the seminal contributions of Varian (1980) and Narasimhan (1988) and derive both managerial implications and implications for empirical researchers with regards to promotional frequency and depth as well as observed product heterogeneity in the market.

Suggested Citation

  • Roman Inderst & Martin Obradovits, 2020. "Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice," Working Papers 2020-25, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2020-25
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    References listed on IDEAS

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    1. Simonson, Itamar, 1989. "Choice Based on Reasons: The Case of Attraction and Compromise Effects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 16(2), pages 158-174, September.
    2. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
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    7. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2016. "Competition for Attention," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(2), pages 481-513.
    8. Chandukala, Sandeep R. & Kim, Jaehwan & Otter, Thomas & Rossi, Peter E. & Allenby, Greg M., 2008. "Choice Models in Marketing: Economic Assumptions, Challenges and Trends," Foundations and Trends(R) in Marketing, now publishers, vol. 2(2), pages 97-184, September.
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    11. Huber, Joel & Payne, John W & Puto, Christopher, 1982. "Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 9(1), pages 90-98, June.
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    Cited by:

    1. Quan Zheng & Xiajun Amy Pan & Janice E. Carrillo, 2019. "Probabilistic Selling for Vertically Differentiated Products with Salient Thinkers," Marketing Science, INFORMS, vol. 38(3), pages 442-460, May.
    2. Roman Inderst & Martin Obradovits, 2023. "Excessive Competition On Headline Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 783-808, May.

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    More about this item

    Keywords

    Relative Thinking; Price Competition; Promotions; Product Choice; Product Heterogeneity; Managerial Implications;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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