Pricing and Promotions in Asymmetric Duopolies

Ram C. Rao

This paper develops a modeling framework for making promotions decisions. In contrast to some of the prior research, the framework explicitly models promotions. Its central feature is the view of promotions competition as a multistage game in which regular prices are chose first, followed by the choice of promotion depths and frequencies. It is used to illustrate the nature of competition between a national brand and private label. In equilibrium, the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand. Moreover, the private label does not promote. This equilibrium is also contrasted with Varian’s framework, used by other researchers, in which mixed strategy equilibrium prices are interpreted as promotions.

(Promotions; Pricing; Private Labels; Multi-stage Game; Nash Equilibrium)