Evolutionary stability of pricing strategies in a retail market with service

This paper analyzes the evolutionary stability of pricing strategies in a retail market by adopting an indirect evolutionary approach. We consider one population consisting of retailers who randomly compete with each other in pairs. Given their strategies (preferences), retailers rationally choose service level to maximize their utilities. We describe the interaction by a symmetric game and derive the conditions under which the pricing strategies are evolutionarily stable. It is shown that the outcome mainly depends on the market scale, the substitutability coefficient of strategic interaction and the corresponding probability of promotional pricing strategy. We present the evolutionarily stable strategies, service levels and profits of the retailers by numerical examples.