Author(s): Suli Lin, Kai-Chi Hsu, Shengyeh Wu, Guan-Ru Chen, Liang-Yu Heish,
There is an existing phenomenon that firms tend to launch price promotions during the same period. Firms that use joint price promotions seem to be engaging in an irrational behavior, because consumers might misinterpret price variations as a reduction in quality. Secondly, a “prisoners’ dilemma” outcome might occur as competitive members launch price promotions simultaneously. This study employs a Bertrand–Nash equilibrium model to demonstrate the risk reduction role of simultaneous price promotions, and shows how price discount campaigns result in a lower price competition among players.