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Endogenous targeted pricing with vertical structure

Author

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  • Masuyama, Ryo

Abstract

Targeted pricing is an aggressive strategy that steals demand from rivals. Previous studies have shown that a firm prefers targeted pricing to uniform pricing when another supply chain is vertically integrated and thus its downstream firm purchases an input at a constant price. This study relaxes the assumption that supply chains are vertically integrated. When supply chains are vertically separated, downstream firms face increasing input-supply function. Then, targeted pricing reduces the rival's demand and hence its input price, which intensifies competition. This negative effect is so severe in our Hotelling model that a firm prefers uniform pricing to targeted pricing when another supply chain is vertically separated.

Suggested Citation

  • Masuyama, Ryo, 2024. "Endogenous targeted pricing with vertical structure," MPRA Paper 121680, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121680
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    More about this item

    Keywords

    targeted pricing; uniform pricing; vertical structure; supply chain management; Hotelling model.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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