Pricing Strategies & Pricing Wars Bill Saporito takes on the is

Bill Saporito takes on the issue of price wars in his article, "Why the Price Wars Never End," (Fortune, March 23, 1992, pp. 68-78). Price wars are used to increase market share by increasing volume, but the tactical goal of greatly decreasing prices, putting a competitor out of business, is hard to achieve in today's environment of mergers and acquisitions and liberal bankruptcy laws. The result is that consumers come to expect increasingly lower prices while manufacturers watch their profit margins erode as they week to maintain their market share. Increased investment in fixed assets means that there are barriers to exit which make it difficult for manufacturers to leave unprofitable markets.

In his article, "Price Elasticity Dynamics Over the Adoption Life Cycle," (Journal of Marketing Research, XXIX, August 1992, pp. 358-367), Philip M. Parker examines research regarding price elasticity over the adoption phase of products. Parker contrasts the lack of research in this area with the large body of research that has been conducted with regard to price elasticity over the product life cycle or brand life cycles. Parker puts forth the hypothesis that price elasticities of adoption begin low and then increase as the adoption life cycle matures, a hypothesis that his study rejects. Instead, product factors appear to regulate elasticity dynamics.

Donald Lichtenstein, Nancy Ridgway and Richard Netemeyer examine the effects that pricing has on consum

Related Essays

Burger Wars .... King, and, further to the point, their pricing and promotions .... environment as a source for new strategies and change .... long-term victor in the burger wars might be .... (1850 7 )

Rock and Roll Music in an Economic Context INTRODUCTION Pop rock .... abandoned the gold standard temporarily during wars and severe .... The successful strategies of the Organi zation of .... from the IMF, however, rational pricing is a .... (6265 25 )

ompanies that sell the assets also rearrange their cost structure to better improve their performance. Not all industries are subject to price wars, but in those industries where there is a price war environment, the competition is intense and has a long-term effect on profitability. Prevalent in the snack food industry, Borden combated a price war by the market leader, Frito, by purchasing competitors to the point where it had a 12 percent market share. While this was less than one-third of the share held by Frito, it put Borden in a strong enough position to fend off the competition of a new entrant, Anheuser-Busch. Parker's findings that price elasticity over the adopting life cycle does not increase from a low level to a high level indicates that the entire issue of pricing is more complex than some industry analysts and company managers would like to perceive. Under Parker's traditional assumption that prices can be set high when a product is initially introduced and then reduced as the product is received into the market and more competitors enter the market, managers did not have much responsibility when it came to setting pricing strategy. But Parker's research indicates that this assumption is not valid, and manager

Category: Economics - P