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A Theory of Channel Price Promotions

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  • Gerstner, Eitan
  • Hess, James D
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    Abstract

    Manufacturers can stimulate sales by a temporary wholesale price reduction for the retailer, a rebate directed toward consumers, or a combination of both. The trade-offs between these price promotions are analyzed, providing insights about their roles, profitability, and welfare properties. Retailers' rebates are also studied. While price discrimination is a common explanation for rebates to consumers, when a product is sold through a distribution channel, the manufacturer may also use rebates to motivate retail participation in the promotion. This explains why rebates may be offered even when all consumers use them and price discrimination does not occur. Copyright 1991 by American Economic Association.

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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 81 (1991)
    Issue (Month): 4 (September)
    Pages: 872-86

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    Handle: RePEc:aea:aecrev:v:81:y:1991:i:4:p:872-86

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    Cited by:
    1. Bester, H. & Petrakis, E., 1994. "Coupons and Oligopolistic Price Discrimination," Discussion Paper 1994-12, Tilburg University, Center for Economic Research.
    2. Ronald W. Cotterill, 2001. "Neoclassical explanations of vertical organization and performance of food Industries," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 33-57.
    3. Caliskan-Demirag, Ozgun & (Frank) Chen, Youhua & Li, Jianbin, 2011. "Customer and retailer rebates under risk aversion," International Journal of Production Economics, Elsevier, vol. 133(2), pages 736-750, October.
    4. Jin-Li Hu & Yu-Hsiu Chiou & Hong Hwang, 2004. "Coupons and price discrimination in vertically-correlated markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 29-40.
    5. Banks, Jeffrey & Moorthy, Sridhar, 1999. "A model of price promotions with consumer search," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 371-398, April.
    6. Timothy J. Richards, 2006. "Sales by multi-product retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 261-277.
    7. Kutsal Dogan & Ernan Haruvy & Ram Rao, 2010. "Who should practice price discrimination using rebates in an asymmetric duopoly?," Quantitative Marketing and Economics, Springer, vol. 8(1), pages 61-90, March.
    8. Cotterill, Ronald W., 1999. "Continuing Concentration in Food Industries Globally: Strategic Challenges to an Unstable Status Quo," Research Reports 25190, University of Connecticut, Food Marketing Policy Center.
    9. Kumar, V. & Madan, Vibhas & Srinivasan, Srini S., 2004. "Price discounts or coupon promotions: does it matter?," Journal of Business Research, Elsevier, vol. 57(9), pages 933-941, September.
    10. Erno Kuiper, W. & Lutz, Clemens & van Tilburg, Aad, 2003. "Vertical price leadership on local maize markets in Benin," Journal of Development Economics, Elsevier, vol. 71(2), pages 417-433, August.
    11. Cotterill, Ronald W., 1999. "Continuing Concentration in the U.S.: Strategic Challenges to an Unstable Status Quo," Research Reports 25165, University of Connecticut, Food Marketing Policy Center.
    12. W. Erno Kuiper & Matthew T.G. Meulenberg, 2002. "Vertical price leadership: A cointegration analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 18(3), pages 317-331.
    13. Cotterill, Ronald W., 2000. "Dynamic Explanations of Industry Structure and Performance," Research Reports 25224, University of Connecticut, Food Marketing Policy Center.
    14. Raju, Jagmohan S., 1995. "Theoretical models of sales promotions: Contributions, limitations, and a future research agenda," European Journal of Operational Research, Elsevier, vol. 85(1), pages 1-17, August.
    15. Michael Cohen & Adam Rabinowitz, 2012. "An Empirical Analysis of Equilibrium Pricing and Advertising in the Ready-To-Eat Cereal Market," Working Papers 15, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    16. Connor, John M., 1997. "Couponing As A Horizontal And Vertical Strategy: Theory And Effects," Working Papers 14344, University of Minnesota, The Food Industry Center.
    17. Chyi-Mei Chen & Shan-Yu Chou & Lu Hsiao & I-Huei Wu, 2009. "Private labels and new product development," Marketing Letters, Springer, vol. 20(3), pages 227-243, September.
    18. Cotterill, Ronald W., 1998. "Estimation of Cost Pass Through to Michigan Consumers in the ADM Price Fixing Case," Research Reports 25148, University of Connecticut, Food Marketing Policy Center.
    19. Kuiper, W. Erno & Lutz, Clemens & van Tilburg, Aad, 2002. "Vertical Price Leadership on Local Maize Markets in Benin," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24886, European Association of Agricultural Economists.
    20. Meghan Busse & Florian Zettelmeyer & Jorge Silva-Risso, 2004. "$1000 Cash Back: Asymmetric Information in Auto Manufaturer Promotions," NBER Working Papers 10887, National Bureau of Economic Research, Inc.

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