IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/62075.html
   My bibliography  Save this paper

Quantity Competition in the Presence of Strategic Consumers

Author

Listed:
  • Bazhanov, Andrei
  • Levin, Yuri
  • Nediak, Mikhail

Abstract

Oligopolistic retailers decide on the initial inventories of an undifferentiated limited-lifetime product offered to strategic consumers. A manufacturer sets the first-period (full) price, while the second-period (clearance) price is determined by a market clearing process. The resulting symmetric pure-strategy equilibria may lead to no sales in the first or second period (Cournot outcome versus collusion), and sales in both periods with the clearance price above or at the salvage value. The equilibria possess a comprehensive set of monotonic properties. In particular, increasing strategic behavior can benefit retailers and hurt consumers, increasing competition may harm the local economy, and high levels of strategic behavior may insure against oversupply that leads to clearance sales at the salvage value. The welfare-optimal number of retailers can lead to the above-cost clearance price.

Suggested Citation

  • Bazhanov, Andrei & Levin, Yuri & Nediak, Mikhail, 2015. "Quantity Competition in the Presence of Strategic Consumers," MPRA Paper 62075, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62075
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/62075/1/MPRA_paper_62075.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/72923/1/MPRA_paper_62075.pdf
    File Function: revised version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/72923/8/MPRA_paper_72923.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hanif D. Sherali & Allen L. Soyster & Frederic H. Murphy, 1983. "Stackelberg-Nash-Cournot Equilibria: Characterizations and Computations," Operations Research, INFORMS, vol. 31(2), pages 253-276, April.
    2. Qian Liu & Garrett J. van Ryzin, 2008. "Strategic Capacity Rationing to Induce Early Purchases," Management Science, INFORMS, vol. 54(6), pages 1115-1131, June.
    3. Yossi Aviv & Yuri Levin & Mikhail Nediak, 2009. "Counteracting Strategic Consumer Behavior in Dynamic Pricing Systems," International Series in Operations Research & Management Science, in: Christopher S. Tang & Serguei Netessine (ed.), Consumer-Driven Demand and Operations Management Models, edition 1, chapter 0, pages 323-352, Springer.
    4. Anantaram Balakrishnan & Michael S. Pangburn & Euthemia Stavrulaki, 2004. ""Stack Them High, Let 'em Fly": Lot-Sizing Policies When Inventories Stimulate Demand," Management Science, INFORMS, vol. 50(5), pages 630-644, May.
    5. Amr Farahat & Georgia Perakis, 2011. "TECHNICAL NOTE---A Comparison of Bertrand and Cournot Profits in Oligopolies with Differentiated Products," Operations Research, INFORMS, vol. 59(2), pages 507-513, April.
    6. Klapper, Daniel & Herwartz, Helmut, 2000. "Forecasting market share using predicted values of competitive behavior: further empirical results," International Journal of Forecasting, Elsevier, vol. 16(3), pages 399-421.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    8. R. D. Theocharis, 1960. "On the Stability of the Cournot Solution on the Oligopoly Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 27(2), pages 133-134.
    9. Guillermo Gallego & Woonghee Tim Huh & Wanmo Kang & Robert Phillips, 2006. "Price Competition with the Attraction Demand Model: Existence of Unique Equilibrium and Its Stability," Manufacturing & Service Operations Management, INFORMS, vol. 8(4), pages 359-375, June.
    10. Franklin M. Fisher, 1961. "The Stability of the Cournot Oligopoly Solution: The Effects of Speeds of Adjustment and Increasing Marginal Costs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(2), pages 125-135.
    11. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March.
    12. Jonathan Kluberg & Georgia Perakis, 2012. "Generalized Quantity Competition for Multiple Products and Loss of Efficiency," Operations Research, INFORMS, vol. 60(2), pages 335-350, April.
    13. Stefan Buehler & Dennis L. Gärtner, 2013. "Making Sense of Nonbinding Retail-Price Recommendations," American Economic Review, American Economic Association, vol. 103(1), pages 335-359, February.
    14. Xuanming Su & Fuqiang Zhang, 2008. "Strategic Customer Behavior, Commitment, and Supply Chain Performance," Management Science, INFORMS, vol. 54(10), pages 1759-1773, October.
    15. Christopher S. Tang & Serguei Netessine (ed.), 2009. "Consumer-Driven Demand and Operations Management Models," International Series in Operations Research and Management Science, Springer, edition 1, number 978-0-387-98026-3, July-Dece.
    16. Gérard P. Cachon & Robert Swinney, 2009. "Purchasing, Pricing, and Quick Response in the Presence of Strategic Consumers," Management Science, INFORMS, vol. 55(3), pages 497-511, March.
    17. Allenby, Greg M & Jen, Lichung & Leone, Robert P, 1996. "Economic Trends and Being Trendy: The Influence of Consumer Confidence on Retail Fashion Sales," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 103-111, January.
    18. al-Nowaihi, A. & Levine, P. L., 1985. "The stability of the cournot oligopoly model: A reassessment," Journal of Economic Theory, Elsevier, vol. 35(2), pages 307-321, August.
    19. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases," American Economic Review, American Economic Association, vol. 103(1), pages 220-256, February.
    20. Xuanming Su, 2007. "Intertemporal Pricing with Strategic Customer Behavior," Management Science, INFORMS, vol. 53(5), pages 726-741, May.
    21. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    22. Butz, David A, 1996. "Does the Per Se Rule Deter Vertical Price-Fixing?," Economic Inquiry, Western Economic Association International, vol. 34(4), pages 770-780, October.
    23. George E. Monahan, 1987. "The Structure of Equilibria in Market Share Attraction Models," Management Science, INFORMS, vol. 33(2), pages 228-243, February.
    24. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    25. Lemmens, A. & Croux, C. & Dekimpe, M.G., 2005. "The European Consumer: United In Diversity?," ERIM Report Series Research in Management ERS-2005-022-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    26. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrei Bazhanov & Yuri Levin & Mikhail Nediak, 2019. "Resale Price Maintenance with Strategic Customers," Production and Operations Management, Production and Operations Management Society, vol. 28(3), pages 535-549, March.
    2. Hou, Lihua & Nie, Tengfei & Zhang, Jianghua, 2024. "Pricing and inventory strategies for perishable products in a competitive market considering strategic consumers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 184(C).
    3. Arian Aflaki & Pnina Feldman & Robert Swinney, 2019. "Becoming Strategic: Endogenous Consumer Time Preferences and Multiperiod Pricing," Operations Research, INFORMS, vol. 68(4), pages 1116-1131, July.
    4. Aviv, Yossi & Bazhanov, Andrei & Levin, Yuri & Nediak, Mikhail, 2016. "Quantity Competition under Resale Price Maintenance when Most Favored Customers are Strategic," MPRA Paper 72011, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aviv, Yossi & Bazhanov, Andrei & Levin, Yuri & Nediak, Mikhail, 2016. "Quantity Competition under Resale Price Maintenance when Most Favored Customers are Strategic," MPRA Paper 72011, University Library of Munich, Germany.
    2. Andrei Bazhanov & Yuri Levin & Mikhail Nediak, 2019. "Resale Price Maintenance with Strategic Customers," Production and Operations Management, Production and Operations Management Society, vol. 28(3), pages 535-549, March.
    3. Du, Jie & Zhang, Juliang & Hua, Guowei, 2015. "Pricing and inventory management in the presence of strategic customers with risk preference and decreasing value," International Journal of Production Economics, Elsevier, vol. 164(C), pages 160-166.
    4. Yossi Aviv & Mike Mingcheng Wei & Fuqiang Zhang, 2019. "Responsive Pricing of Fashion Products: The Effects of Demand Learning and Strategic Consumer Behavior," Management Science, INFORMS, vol. 65(7), pages 2982-3000, July.
    5. Seungjin Whang, 2015. "Demand Uncertainty and the Bayesian Effect in Markdown Pricing with Strategic Customers," Manufacturing & Service Operations Management, INFORMS, vol. 17(2), pages 66-77, January.
    6. Mustafa O. Kabul & Ali K. Parlaktürk, 2019. "The Value of Commitments When Selling to Strategic Consumers: A Supply Chain Perspective," Management Science, INFORMS, vol. 65(10), pages 4754-4770, October.
    7. Vincent Mak & Amnon Rapoport & Eyran J. Gisches & Jiaojie Han, 2014. "Purchasing Scarce Products Under Dynamic Pricing: An Experimental Investigation," Manufacturing & Service Operations Management, INFORMS, vol. 16(3), pages 425-438, July.
    8. Xuanming Su, 2010. "Optimal Pricing with Speculators and Strategic Consumers," Management Science, INFORMS, vol. 56(1), pages 25-40, January.
    9. Christian Borgs & Ozan Candogan & Jennifer Chayes & Ilan Lobel & Hamid Nazerzadeh, 2014. "Optimal Multiperiod Pricing with Service Guarantees," Management Science, INFORMS, vol. 60(7), pages 1792-1811, July.
    10. Dong, Junfeng & Wu, Desheng Dash, 2019. "Two-period pricing and quick response with strategic customers," International Journal of Production Economics, Elsevier, vol. 215(C), pages 165-173.
    11. Mehmet Sekip Altug & Tolga Aydinliyim, 2016. "Counteracting Strategic Purchase Deferrals: The Impact of Online Retailers’ Return Policy Decisions," Manufacturing & Service Operations Management, INFORMS, vol. 18(3), pages 376-392, July.
    12. Huang, Zongsheng & Huang, Lingchen & Zhao, Yingxue & Meng, Xiaoge, 2021. "Money-back guarantee in the presence of strategic customer behavior," International Journal of Production Economics, Elsevier, vol. 239(C).
    13. Nicole Perez Becker & Benny Mantin & Joachim Arts, 2022. "Strategic Behavior in a Serial Newsvendor," DEM Discussion Paper Series 22-02, Department of Economics at the University of Luxembourg.
    14. Arian Aflaki & Pnina Feldman & Robert Swinney, 2019. "Becoming Strategic: Endogenous Consumer Time Preferences and Multiperiod Pricing," Operations Research, INFORMS, vol. 68(4), pages 1116-1131, July.
    15. Qian Liu & Dan Zhang, 2013. "Dynamic Pricing Competition with Strategic Customers Under Vertical Product Differentiation," Management Science, INFORMS, vol. 59(1), pages 84-101, August.
    16. Yiangos Papanastasiou & Nicos Savva, 2017. "Dynamic Pricing in the Presence of Social Learning and Strategic Consumers," Management Science, INFORMS, vol. 63(4), pages 919-939, April.
    17. Ken Moon & Kostas Bimpikis & Haim Mendelson, 2018. "Randomized Markdowns and Online Monitoring," Management Science, INFORMS, vol. 64(3), pages 1271-1290, March.
    18. Dror Hermel & Benny Mantin, 2018. "Selling to strategic consumers: on the benefits of consumers’ valuation uncertainty and abundant inventory," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 17(3), pages 146-165, June.
    19. Wu, Meng & Ran, Yun & Zhu, Stuart X., 2022. "Optimal pricing strategy: How to sell to strategic consumers?," International Journal of Production Economics, Elsevier, vol. 244(C).
    20. Zhang, Ying & Zhang, Juliang, 2017. "Strategic customer behavior with disappointment aversion customers and two alleviation policies," International Journal of Production Economics, Elsevier, vol. 191(C), pages 170-177.

    More about this item

    Keywords

    quantity competition; two-period game; strategic consumers; symmetric equilibria;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:62075. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.