The role of rebates in the hybrid competition between a national brand and a private label with present-biased consumers
Over the past years, rebates have been increasingly used by national brand (NB) manufacturers. Conventional wisdom suggests that rebates are beneficial to firms as long as positive slippage exists. Based on the present-biased preference theory, we investigate the performance of NB rebates as a counterstrategy to the retailer's private label (PL). Game theoretic models are developed to characterize channel dynamics. Involving consumers' knowledge levels of the present-biased preferences, our model reveals multiple insights. First, a positive slippage rate does not necessarily benefit the NB manufacturer if the rebates fail to expand the demand of the NB. Second, the retailer's commitment to the original NB price plays a positive role in improving the equilibrium profits of both parties. Third, for loss-averse consumers under preference uncertainties, the NB manufacturer and the retailer prefer a low redemption cost, in contrary to the conventional idea that sellers take advantage of consumers with high redemption costs.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gilpatric, Scott M., 2008. "Present-biased preferences, self-awareness and shirking," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 735-754, September.
- Eitan Gerstner & James D. Hess, 1995. "Pull Promotions and Channel Coordination," Marketing Science, INFORMS, vol. 14(1), pages 43-60.
- Gerstner, Eitan & Hess, James D, 1991. "A Theory of Channel Price Promotions," American Economic Review, American Economic Association, vol. 81(4), pages 872-86, September.
- Ted O'Donoghue and Matthew Rabin ., 1997.
"Doing It Now or Later,"
Economics Working Papers
97-253, University of California at Berkeley.
- Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- 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.
- Arcelus, F.J. & Gor, Ravi & Srinivasan, G., 2012. "Price, rebate and order quantity decisions in a newsvendor framework with rebate-dependent recapture of lost sales," International Journal of Production Economics, Elsevier, vol. 140(1), pages 473-482.
- Norris Bruce & Preyas Desai & Richard Staelin, 2006. "Enabling the Willing: Consumer Rebates for Durable Goods," Marketing Science, INFORMS, vol. 25(4), pages 350-366, 07-08.
- Yang, Shilei & Munson, Charles L. & Chen, Bintong, 2010. "Using MSRP to enhance the ability of rebates to control distribution channels," European Journal of Operational Research, Elsevier, vol. 205(1), pages 127-135, August.
- Ault, Richard W, et al, 2000. "Rebates, Inventories, and Intertemporal Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 570-78, October.
- Scott M. Gilpatric, 2009. "Slippage in Rebate Programs and Present-Biased Preferences," Marketing Science, INFORMS, vol. 28(2), pages 229-238, 03-04.
- Yuxin Chen & Sridhar Moorthy & Z. John Zhang, 2005. "Research Note---Price Discrimination After the Purchase: Rebates as State-Dependent Discounts," Management Science, INFORMS, vol. 51(7), pages 1131-1140, July.
- Philippe Bontems & Sylvette Monier-Dilhan & Vincent RÃ©quillart, 1999.
"Strategic effects of private labels,"
162412, Institut National de la Recherche Agronomique, France.
- Mills, David E, 1999. "Private Labels and Manufacturer Counterstrategies," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 26(2), pages 125-45, June.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Murray, Chase C. & Gosavi, Abhijit & Talukdar, Debabrata, 2012. "The multi-product price-setting newsvendor with resource capacity constraints," International Journal of Production Economics, Elsevier, vol. 138(1), pages 148-158.
- Arcelus, F.J. & Kumar, Satyendra & Srinivasan, G., 2007. "Pricing and rebate policies for the newsvendor problem in the presence of a stochastic redemption rate," International Journal of Production Economics, Elsevier, vol. 107(2), pages 467-482, June.
- Gerstner, Eitan & Hess, James D., 1991. "Who benefits from large rebates: Manufacturer, retailer or consumer?," Economics Letters, Elsevier, vol. 36(1), pages 5-8, May.
- Raj Sethuraman, 2009. "Assessing the External Validity of Analytical Results from National Brand and Store Brand Competition Models," Marketing Science, INFORMS, vol. 28(4), pages 759-781, 07-08.
- Fiona Scott Morton & Florian Zettelmeyer, 2004. "The Strategic Positioning of Store Brands in Retailer--Manufacturer Negotiations," Review of Industrial Organization, Springer, vol. 24(2), pages 161-194, 03.
- Qiang Lu & Sridhar Moorthy, 2007. "Coupons Versus Rebates," Marketing Science, INFORMS, vol. 26(1), pages 67-82, 01-02.
- Arcelus, F.J. & Kumar, Satyendra & Srinivasan, G., 2008. "Pricing and rebate policies in the two-echelon supply chain with asymmetric information under price-dependent, stochastic demand," International Journal of Production Economics, Elsevier, vol. 113(2), pages 598-618, June.
- Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
- Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
- Narasimhan, Chakravarthi & Wilcox, Ronald T, 1998. "Private Labels and the Channel Relationship: A Cross-Category Analysis," The Journal of Business, University of Chicago Press, vol. 71(4), pages 573-600, October.
- Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-28, Fall.
- Ram C. Rao, 1991. "Pricing and Promotions in Asymmetric Duopolies," Marketing Science, INFORMS, vol. 10(2), pages 131-144.
- Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
- MartI´n-Herrán, Guiomar & Sigué, Simon P., 2011. "Prices, promotions, and channel profitability: Was the conventional wisdom mistaken?," European Journal of Operational Research, Elsevier, vol. 211(2), pages 415-425, June.
- Jorgensen, Steffen & Taboubi, Sihem & Zaccour, Georges, 2003. "Retail promotions with negative brand image effects: Is cooperation possible?," European Journal of Operational Research, Elsevier, vol. 150(2), pages 395-405, October.
- 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.
- Karray, Salma & Zaccour, Georges, 2006. "Could co-op advertising be a manufacturer's counterstrategy to store brands?," Journal of Business Research, Elsevier, vol. 59(9), pages 1008-1015, September.
When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:145:y:2013:i:1:p:208-219. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.