We consider an oligopolistic market with two symmetric suppliers (brands) A and B that sell substitutable products. We show that a uniform price and package-size equilibrium exists when products are sufficiently substitutable. Following a cost increase, however, brand B adheres to the price equilibrium, while brand A deviates by adjusting package size while holding the price fixed. Consumers are segmented into rational consumers, who always compare unit prices, and trusting consumers, who assume they receive the same value for the same price. We analyze different market configurations to determine when brand A only, brand B only, both, or neither benefits from brand A’s deviation from the price equilibrium. We also examine conditions under which brand B shrinkflates the product to increase its market share by taking advantage of trusting consumers.

Keywords

Package Sizing, Shrinkflation, Supply Chain Management, Game Theory and Pricing.