Quality, value, satisfaction, trust, a

As Bronnenberg and Wathieu (1996) use loss aversion (first proposed by Hardie, Johnson, and
Fader 1993) to explain asymmetric competition as opposed to the explanation based on price/quality
tradeoffs in our paper, the two works are not directly comparable. This is because from a conceptual
perspective, while tradeoff is a fundamental process that gives rise to asymmetry in our paper, the
expression happens to be the result arising from the loss aversion phenomenon in Bronnenberg and
Wathieu (1996). Proposition 1 derived in their paper, though more detailed, basically implies that as the
quality differential goes up, the asymmetry favoring H (L) increases (decreases) and as the price
differential goes up, the asymmetry favoring H (L) decreases (increases). This conclusion is consistent
with the results derived in our paper (Result #2 and Result #3) which also state that increase in quality
differential enhances asymmetry favoring H and increase in price differential subdues the asymmetry
favoring H. Therefore, though the explanations and the specificity of results for asymmetric competition
are different between our paper and Bronnenberg and Wathieu’s (1996) work, there is consistency in the
outcome of the two explanations, thereby providing further face validity for our framework. Interestingly,
we are able to derive qualitatively similar results without resort to a strong assumption of loss aversion.
Further, as described below, our framework also enables the derivation of some useful results related to
pricing strategies for different quality tiers. This is also a new feature that distinguishes our research from
other research on quality tier competition.
A key contribution of the conceptual framework is that it offers a new explanation for the main
effect prediction of asymmetric quality tier competition that is consistent with research in this area
(Allenby and Rossi 1991; Blattberg and Wisniewski 1989; Hardie, Johnson, and Fader 1993; Sivakumar
and Raj 1997). A positive feature of this new explanation is that the hypotheses are based on the well-
accepted notion of tradeoffs and hence based on weaker (i.e., less restrictive) assumptions compared to
stronger (i.e., more restrictive) assumptions used in existing research. For example, Blattberg and
Wisniewski’s (1989) explanation is based on a particular distribution of reservation prices, Allenby and
Rossi’s (1991) explanation is based on rotating indifference curves, and Hardie, Johnson, and Fader’s
(1993) explanation is based on loss aversion – all of which are stronger and more restrictive assumptions
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