Do Small Firms Pay to Stay? An Experimental Investigation

Vulkan, Nir and Mahmood, Ammara (2018) Do Small Firms Pay to Stay? An Experimental Investigation. Journal of Marketing Behavior (Forthcoming). (Accepted)

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Abstract

We analyze the impact of market share on pricing strategies in markets with customer recognition. We show that in horizontally differentiated competitive markets prices vary with market share. . In asymmetric markets having a weak brand is a sufficient condition for discounts to existing customers, resulting in the less preferred firms offering discounts for loyalty, and dominant brands offering discounts for switching. More specifically, a low inherited market
share provides sufficient condition for discounts to existing customers. In contrast, when market share is sufficiently high firms offer discounts for switching. A customer retention strategy enables smaller firms to increase profits and market share while the large firm loses market share. We further contribute to the literature on BBPD by conducting controlled experiments. In line with our predictions we find that the price setting behavior of experimental participants varies with market share and that having a smaller inherited customer base results in loyalty rewards.

Item Type: Article
Keywords: finance; pricing strategies; market share; marketing; marketing behavior
Subject(s): Finance
Date Deposited: 14 Jun 2018 14:30
Last Modified: 14 Jun 2018 14:30
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6850

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