The Asymmetric Share Effect: An Empirical Generalization on Cross-Price Effects

Abstract

Prior empirical literature states that asymmetry in cross-price effect favors the high-share brand. That is, when high-share brands discount, they have a greater impact on low-share brands than the reverse. This conclusion is based on consideration of cross-price elasticities. The authors point out that focusing on cross-price elasticities for assessing asymmetry is inappropriate for determining the incremental profitability from price promotions. Instead, asymmetries should be investigated in absolute cross-price effects, that is, change in market share of a competing brand for a unit price change of the focal brand. The authors theoretically and empirically demonstrate that asymmetry reverses when absolute cross-price effect is considered. That is, the absolute cross-price effect of a price reduction of a low-share brand on the market share or sales of a high-share brand is greater than the reverse. The authors discuss the implications of the findings and future research directions.