Introduction

Abstract

A recent study named price competition as one of the two major challenges in marketing (Handelsblatt 1997, see also Simon and Dolan 1997, p. 14). Price competition and, more specifically, competitor price reaction, has been a key issue of interest in economics since the time of Bertrand (1883). In the marketing discipline, competitive pricing has recently received some attention, mainly in the context of competitive aspects of marketing mix issues, such as product quality (Blattberg and Wisniewski 1989, Tellis and Wernerfeldt 1987, Putsis and Dahr 1998), but also as a separate issue in the context of dynamic optimal pricing behavior (Coughlan and Mantrala 1992, Griffith and Rust 1993, Natter and Hruschka 1998). Often, patterns or types of competitive pricing behaviors are proposed or analyzed. “Modelers of competitive pricing strategy seek to understand both how firms react to the pricing changes of their rivals, and what is the nature of the pricing equilibrium” (Coughlan and Mantrala 1992, p. 91). The competitor reaction (or responsiveness) aspect of pricing has been investigated by eg. Dekimpe et al. (2001) and Chintagunta and Desiraju (2001).