Pricing Strategies and Decisions in a Bertrand Competition with Markov Process

Abstract

In this paper, we consider that consumers have memory about their previous purchases, and thus consumers switching behavior is associated with the gap of consumer perception. In such an environment, we investigate the interaction of the periodically pricing strategies between a brand manufacturer and a generic manufacturer, who sell homogeneous consumable products in the market, in a two-period supply chain. We formulate consumers Markovian switching behavior by using utility functions to obtain market demand for each manufacturer. Subsequently, we derive the manufacturers equilibrium pricing decisions and profits. Then, we resort to the numerical analysis to explore the parametric effects on the equilibrium results in order to provide the managerial insights.