Asymmetry effects: How product quality tier affects price competition

The literature on competitive asymmetry effects suggests that the effect of price promotion is not equal for all competing brands, yet still contains diverse arguments. Based on a literature review of the asymmetric effects of price competition, this article identifies two key dimensions for analyzing price competition patterns: (1) the level, inter-tier or intra-tier, of price/quality brand competition, and (2) the methods used to estimate the cross-price effects (cross-price elasticity or cross-price sensitivity). Both dimensions need to be considered to bring clarity to the inconsistent arguments in the literature. Four hypotheses were proposed to indicate how asymmetric effects work. The study adopts a choice-based conjoint analysis with a seemingly unrelated regression (SUR) model in order to consider the impact of price changes among focal and competing brands on the market shares of a given product (bottled water). One hundred and ten college students took part in this conjoint study. The results show that when cross-price elasticity is the measure adopted, the asymmetric share effect favors high-share brands in intra-tier competition, and the asymmetric price effect favors high-price brands in inter-tier competition. However, when cross-price sensitivity is the measure adopted, the asymmetric share effect favors low-share brands in inter-tier competition, and the neighborhood cross-price effect is observed in intra-tier competition. This paper concludes with a discussion of the implications of these findings. © 2020, Chinese Society for Quality. All rights reserved.