Retail Price Competition with Product Fit Uncertainty and Assortment Selection

Haoying Sun, Stephen M. Gilbert

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

Abstract

For many products, consumers need to physically experience them in order to assess their own valuations. We study how the equilibrium pricing among competing retailers depend upon assortments when consumers must search for this sort of fit information and are heterogeneous in their shopping behaviors. Specifically, we consider a market that consists of two retailers and two possible products. A consumer is either loyal to one of the retailers or is a shopper who follows a rational dynamic search process based on the prices and available assortments. We demonstrate how the retailers’ equilibrium pricing strategies depend upon their assortment choices and the resulting search process. Among other things, we show that, when the retailers carry non-overlapping assortments, as search cost increases, the equilibrium pricing strategy changes from a low price with no discounting, to a high price with deep discounting. Furthermore, we find that when a full line retailer competes with a limited line retailer, a strategy of discounting only the common product can dominate one of discounting both products together. This is not the case when his rival also carries the full product line.

Original languageEnglish
Pages (from-to)1658-1673
Number of pages16
JournalProduction and Operations Management
Volume28
Issue number7
DOIs
StatePublished - Jul 2019

Bibliographical note

Publisher Copyright:
© 2019 Production and Operations Management Society

Keywords

  • consumer search
  • customer loyalty
  • mixed strategy equilibrium
  • price discounting
  • product fit uncertainty

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

Fingerprint

Dive into the research topics of 'Retail Price Competition with Product Fit Uncertainty and Assortment Selection'. Together they form a unique fingerprint.

Cite this