Predicting the Pricing Strategies of Rival firms in an industry

Any executive will tell you that understanding how competitors will respond to your actions should be a critical component of strategic decision making. But ask that same person how seriously her company actually assesses competitor reaction, and she will probably roll her eyes. In a recent survey conducted by McKinsey & Company, two-thirds of strategic planners expressed a strong belief that companies should incorporate expected competitor reactions into strategic decisions. Yetin a surveyconducted by David B. Montgomery, Marian Chapman Moore, and Joel E. Urbany (published in 2005 inMarketing Science), fewer than one in 10 managers recalled having done so, and fewer than one in five expected to in the future.

This...