Explaining pricing conduct in a product-differentiated oligopolistic market: An empirical application of a price conjectural variations model

A generalized Bertrand-type model is applied to gain insights on Japanese firms' pricing conduct regarding milk beverages made from fresh milk and reconstituted milk. The empirical results, based on weekly scanner data, indicate the original Bertrand model is inappropriate for our empirical analysis. The estimated model resulted in substantially more elastic own-price elasticities than previous estimates in Japan based on aggregate market data, supporting the Japanese retailers' contention that fluid milk is a more price-elastic product than what previous studies had found. Incorporating estimated price conjectures into the model resulted in considerable discrepancies between partial and perceived own-price elasticities. The result shows that a firm's price conjecture can be an important factor in determining the firm's perceived own-price elasticity. The estimated conjectural variations were tested to determine whether they represent consistent pricing behavior, and the results indicated that consistent pricing behavior could not be statistically supported. [Econ-Lit citations: Q110, Q130] © 2002 Wiley Periodicals, Inc.