Fanning the flames? How media coverage of a price war impacts retailers, consumers and investors

H.J. van Heerde, E. Gijsbrechts, K. Pauwels

Research output: Contribution to journalArticleScientificpeer-review

14 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)674-693
JournalJournal of Marketing Research
Volume52
Issue number5
DOIs
Publication statusPublished - Oct 2015

Keywords

  • media coverage
  • price war
  • retailing
  • hierarchical Bayes
  • time series econometrics

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