Strategic Pricing Behavior Under Asset Value Maximization

This article investigates a comprehensive assessment of firm strategic behavior under financial market uncertainty. A general theoretical model of market value maximization (MVM) is constructed using a traditional capital asset pricing format. The model built on the nonlinear Almost Ideal Demand Systems (AIDS) and structural first-order conditions is developed. By full information maximum likelihood (FIML) estimation, the model evaluates pricing strategies in the U.S. margarine and butter retail markets using 4-week interval scanner data from 1998 to 2002. The profit maximization model is rejected in favor of the MVM structure, which indicates that financial market uncertainty plays an important role in the pricing behavior of this industry. We estimate the price elasticities of demand for leading brands and investigate the degree of market power in this industry.