Pricing Under Dynamic Competition When Loyal Consumers Stockpile

Increase in sales due to promotions could come at the expense of competitors; such sales come from consumers who have relatively weak brand preferences. Increased sales from consumers with strong brand preferences are likely to be at the expense of the promoted brand. In other words, brand loyal consumers can take advantage of promotions to stockpile for future consumption. Thus, loyal consumers who would be otherwise willing to buy at high prices can strategically stockpile at low prices. What is its impact on firms’ profits? How should firms adapt to consumer stockpiling? To answer these questions we model a duopoly competing for loyal and switching consumers.