Executive Summaries.

RETAIL industry; PRICING; MARKET potential; RETAIL stores; CONSUMER behavior; PRICE variance

This article focuses on retailer reactions to a competitor's price change. Researchers have examined consumer response to price in some detail, yet competitive reaction to price changes has received little attention, in spite of its economic significance. The retail grocery industry provides an interesting environment for researching competitive reactions, as price competition is relatively intense and the success of a given pricing initiative generally depends upon the response of competitors. In this paper, the authors examine whether retail grocery price-setters' reactions to competitive price changes are consistent with the "follow price cuts, don't follow price increases" reaction pattern assumed in the classic kinked demand curve theory. To examine the pricing reactions of decision-makers in the retail grocery industry, they present managers with a case study which describes a market in which one firm has taken a pricing initiative, either raising or lowering prices. Several managerial implications for retailers emerge from the study.