RIEB Discussion Paper Series No.2025-13

Title

Targeted Pricing and Vertical Structure

Abstract

Targeted pricing is an aggressive strategy to steal demand from rivals. Therefore, it is believed that firms should employ it. However, targeted pricing has rarely been observed. There is a gap between our perceptions in the literature on targeted pricing and reality. This study demonstrates the negative aspects of targeted pricing by considering supply chain competition. When a rival supply chain is vertically separated, targeted pricing lowers the rival’s input price and intensifies competition. Conversely, when the rival firm is vertically integrated, this effect does not occur. Therefore, a firm should confirm its rival's vertical structure when deciding whether to employ targeted pricing.

Keywords

Targeted pricing; Uniform pricing; Vertical structure; Supply chain management; Hotelling model

JEL Classification

D43, L10, L13

Inquiries

Ryo MASUYAMA*
Graduate School of Economics, Kobe University
Junior Research Fellow, RIEB, Kobe University

*This Discussion Paper won the Kanematsu Prize (FY 2024).