Do Firms post Prices after seeing the Cost Pricing Programs of Competitors?

  • Muhammad Imtiaz Subhani ILMA University
  • Amber Osman Law Offices of Osman & Co., Department: Research & Development / IP,
Keywords: Market price; cost price; high involvement products; low involvement products; substitute brands; pricing behavior model; ARDL Model

Abstract

The price tag on any product has always been enticing to customers irrespective of the era and is a key factor in the purchase intention decision. Pricing behavior incorporates strategies to position the brand in the market. This paper explored whether the pricing strategy (setting market price) of a firm is determined by its own production cost for a product or by the cost pricing programs of other firms (competitors). It found that the pricing strategy for a product varies among firms. The findings confirmed that for high involvement substitutes, the pricing behavior of a firm mainly depends on its own production cost, in contrast to low involvement substitutes. The AR(1) process is present in the series of market prices for both of the HI substitutes, which reflects that pricing programs for HI substitutes for current and future periods also rely on their pricing history. The AR1-process was reversed for LI substitutes.

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Published
2020-06-03