Fanning the flames? How media coverage of a price war affects retailers, consumers and investors
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Date
2015-10-01
Open Access Location
Authors
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Journal ISSN
Volume Title
Publisher
American Marketing Association
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Abstract
This article explores how media coverage of a price war affects customer, retailer, and investor reactions over time. Using data covering a Dutch supermarket price war (2003-2005), the authors find that price reductions, especially deep reductions, trigger media coverage of the price conflict. This sets off a chain of reactions. Press messages have a significant effect on market share and abnormal stock returns, beyond retailers' own price and advertising. Importantly, this study uncovers striking asymmetries regarding the kind of coverage to which stakeholders react: whereas consumers only respond to the tone of price-related press coverage, retailers and investors only react to its quantity. Next, media coverage feeds back into the retailers' pricing actions: more media coverage triggers new price cuts in addition to those dictated by competitive reactions. As such, media coverage triggers a deeper spiral of price cuts, intensifying the competitive price battle. However, as the price war progresses, media coverage becomes less frequent and less favorable, which decelerates the downward price spiral.
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Keywords
media coverage, price war, retailing, hierarchical Bayes, time series econometrics
Citation
JOURNAL OF MARKETING RESEARCH, 2015, 52 (5), pp. 674 - 693