Structural Modeling in Marketing: Review and Assessment
Marketing Science
Modeling pricing strategies using game theory and support vector machines
ICDM'10 Proceedings of the 10th industrial conference on Advances in data mining: applications and theoretical aspects
Profit loss in differentiated oligopolies
Operations Research Letters
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Diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies. In this paper, we formulate a game-theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market. Firm (or brand) level demand functions account for the contemporaneous and carry-over effects of these marketing activities, and also allow for the effects of competitor actions. Firms take into consideration the actions of their rivals, as well as their own demand and cost functions (both production and advertising) when determining the profit-maximizing price and advertising levels. Our formulation enables us to quantify not only the direction and magnitude of competitive reactions, but also to identify the underlying form of market conduct that generates the particular pattern of interaction. We specify and estimate a fully structural econometric model for three firms constituting a distinct sub-market within a personal-care product category. We estimate the demand and competitive interaction parameters, as well as the production and advertising cost functions for each firm. We then derive implications for competitive interactions and market structure. Interestingly, we find that while firms seem to compete on advertising, they price cooperatively, thereby enhancing their price-cost margins.