We address two fundamental shortcomings of conventional
price promotion models: (1) The duopoly structure
can be limited in the various price promotion strategies that
are considered, and (2) switchers are usually assumed to be
homogeneous in that they know the prices of all retailers.
Retailer price promotion strategies from the standard duopoly
approach (small versus large retailers) are driven by different
loyal segment sizes and homogeneous switchers who
compare all prices.1 We present a model of an asymmetric
triopoly (three firms) that includes multiple “switcher segments,”
in which switchers compare prices at different
retailers. Markets involving several asymmetric firms may
prove more insightful and reflective of actual market conditions
than the conventional duopoly. Furthermore, in the
context of multiple retailers, there may be multiple segments
of “partially informed” switchers in addition to the
typical switchers who compare prices for all retailers. Even
in an Internet setting, in which retailers proliferate and
many shoppers use price comparison engines, not all
switchers will be exhaustive price comparison machines.
For example, many online book customers may compare
prices between the two larger firms, Amazon.com and
B&N, while ignoring smaller retailers such as a1Books.
Recent studies indicate that, on average, online shoppers
visit only 1.2–1.4 booksellers (Johnson et al. 2004; Montgomery
et al. 2004). Even the use of price comparison
“shopbots” remains relatively low, given the various cognitive
costs of evaluating many alternatives (Montgomery et
al. 2004). Consumers are more likely to visit Internet retailers
they trust because of an assortment of factors (e.g., Bart
et al. 2005). If some customers prefer to compare prices
only among trusted stores whereas other customers compare
prices from multiple listed retailers, switcher segments
with different types of price comparison behavior will
occur. Therefore, the realistic assumption is that switchers
are segmented because they compare a subset of retailer
prices. By including segmented switchers in an asymmetric
triopoly, our model derives a more complete set of promotion
strategies that are not predicted under asymmetric
duopolies.