Competitive pricing with dynamic asymmetric price effects

@article{Anderson2005CompetitivePW,
  title={Competitive pricing with dynamic asymmetric price effects},
  author={Chris K. Anderson and Henning Rasmussen and Leo MacDonald},
  journal={ITOR},
  year={2005},
  volume={12},
  pages={509-525}
}
We model the temporal pricing strategies for two firms with asymmetric costs and differing market power (i.e. big-box retailer versus smaller local merchant). A firm’s demand is a function of its price, a reference price and its competitor’s price. Price effects may be asymmetric, i.e. consumers respond differently if they perceive a good to be over-priced versus underpriced. We derive analytical results for optimal prices. We show through a series of numerical examples under what settings… CONTINUE READING