Correspondence: Leandro L DalleMule, 95-34 Intervale Rd, Stamford, CT 06905, USA. Tel: +1 203 979 3981; Fax: +1 212 655 8291; E-mail: ldallemule@deloitte.com

¹Leandro L. DalleMule holds a master's in business administration in managerial economics and decision sciences from the Kellogg School of Management at Northwestern University, a bachelor's degree in mechanical engineering from University of Sao Paulo, Brazil and is currently pursuing an advanced graduate degree in applied mathematics from Columbia University. He has several years of experience in pricing, marketing, and risk management for the oil and gas and financial services industries. He currently works in the Pricing and Revenue Management practice in the New York office of Deloitte & Touche USA LLP, a major consultancy firm.

Received 12 December 2007; Revised 12 December 2007; Published online 7 March 2008.

Abstract

Retail pricing is often a complex non-zero sum, iterated game played by both analytically sophisticated businesses and strategically primitive ones. Game theory can help retailers avoid, survive, and win pricing wars — but it is undoubtedly not a trivial endeavour. This paper analyses how a tit for tat pricing strategy can be successfully utilised against multiple opponents through an example drawn from the Brazilian gasoline retail market. Although ultimately successful, the pricing strategy adopted by oil companies cost them approximately $15m per year in forgone profits or $214,000 per gas station. A relatively high price to pay in a small countryside city in Brazil.