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Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals

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  • Aviv Nevo
  • Catherine Wolfram

Abstract

We explore the relationship between shelf prices and manufacturers' coupons for 25 ready-to-eat breakfast cereals. We find that shelf prices are lower during periods when coupons are available. This result is inconsistent with static monopoly price discrimination under a broad range of assumptions. We present evidence that is inconsistent with both dynamic theories of price discrimination and explanations of couponing based on the vertical relationship between manufacturers and retailers. We find support for models of price discrimination in oligopoly settings as well as suggestions that firmwide incentives may induce managers to use coupons and price cuts simultaneously. Finally, lagged coupons have a positive effect on current sales, suggesting that coupons are used to induce repurchase.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 2 (Summer)
Pages: 319-339

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Handle: RePEc:rje:randje:v:33:y:2002:i:summer:p:319-339

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Web page: http://www.rje.org

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Web: http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi

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Cited by:
  1. Pascal Courty & Mario Pagliero, 2009. "The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry," Economics Working Papers ECO2009/04, European University Institute.
  2. Courty, Pascal & Pagliero, Mario, 2009. "Price Discrimination in the Concert Industry," CEPR Discussion Papers 7143, C.E.P.R. Discussion Papers.
  3. Armstrong, M., 2006. "Recent developments in the economics of price discrimination," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  4. 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.
  5. Armstrong, M, 2008. "Price Discrimination," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  6. Meghan Busse & Jorge Silva-Risso & Florian Zettelmeyer, 2006. "$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions," American Economic Review, American Economic Association, vol. 96(4), pages 1253-1270, September.
  7. Sun, Ching-jen, 2007. "Dynamic Price Discrimination and Quality Provision Based on Purchase History," MPRA Paper 9855, University Library of Munich, Germany, revised Aug 2008.
  8. Rennhoff, Adam D. & Serfes, Konstantinos, 2009. "Retailer price distributions and promotional activities," Economics Letters, Elsevier, vol. 103(2), pages 91-95, May.
  9. Chidmi, Benaissa & Lopez, Rigoberto A. & Cotterill, Ronald W., 2004. "Vertical Relationships In The Ready-To-Eat Breakfast Cereal Market: A Brand-Supermarket Level Analysis," 2004 Annual meeting, August 1-4, Denver, CO 19916, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. Udo Schmidt-Mohr & J. Villas-Boas, 2008. "Competitive product lines with quality constraints," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 1-16, March.
  11. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.

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