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

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.