Fanning the flames?: How media coverage of a price war impacts retailers, consumers and investors
van Heerde,H.J. Gijsbrechts,E. Pauwels,K.
van Heerde,H.J.
Gijsbrechts,E.
Pauwels,K.
Abstract
This paper explores how media coverage of a price war impacts customer, retailer and investor reactions over time. Based on data covering a Dutch supermarket price war (2003–2005), the authors find that price reductions, and especially deep ones, 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, over and above retailers' own price and advertising. Importantly, this study uncovers striking asymmetries in what coverage stakeholders react to: 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, over and above 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, slowing down the downward price spiral.
Description
Date
2015-10
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
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Journal Issue
Keywords
media coverage, price war, retailing, hierarchical Bayes, time series econometrics
Citation
van Heerde, H J, Gijsbrechts, E & Pauwels, K 2015, 'Fanning the flames? How media coverage of a price war impacts retailers, consumers and investors', Journal of Marketing Research, vol. 52, no. 5, pp. 674-693. https://doi.org/10.1509/jmr.13.0260