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The Asymmetric Share Effect: An Empirical Generalization on Absolute Cross-Price Effects

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  • Srinivasan, V. Seenu

    (Stanford U)

  • Sethuraman, Raj

    (Southern Methodist U)

Abstract

Past empirical literature states that asymmetry in cross-price effect favors the large-share brand. That is, when large-share brands discount, they have a greater impact on small-share brands than the reverse. This conclusion is based on consideration of cross-price elasticities. This paper points out that focusing on cross-elasticities for measuring asymmetry is inappropriate for assessing incremental profitability from price promotions. Instead, we should investigate asymmetries in absolute cross-price effects (i.e., change in market share of a competing brand for a unit price change of the focal brand). We theoretically and empirically demonstrate that asymmetry reverses when absolute cross-price effect is considered. That is, the absolute cross-price effect of a price reduction of a lower-share brand on the market share of a higher-share brand is greater than the reverse. The general intuition is that a small-share brand has a greater pool of consumers to draw from when it discounts than does a large-share brand. The implications of the findings and future research directions are discussed.

Suggested Citation

  • Srinivasan, V. Seenu & Sethuraman, Raj, 2000. "The Asymmetric Share Effect: An Empirical Generalization on Absolute Cross-Price Effects," Research Papers 1593r, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1593r
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    References listed on IDEAS

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    1. Kim, Byung-Do & Blattberg, Robert C & Rossi, Peter E, 1995. "Modeling the Distribution of Price Sensitivity and Implications for Optimal Retail Pricing," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 291-303, July.
    2. Raj Sethuraman & V. Srinivasan & Doyle Kim, 1999. "Asymmetric and Neighborhood Cross-Price Effects: Some Empirical Generalizations," Marketing Science, INFORMS, vol. 18(1), pages 23-41.
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