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Discriminatory Trade Promotions in Consumer Search Markets

Author

Listed:
  • Maarten Janssen

    (Department of Economics, University of Vienna, Vienna 1010, Austria; Center for Economic Policy Research, Washington, DC 20009)

  • Edona Reshidi

    (Banking and Payments Department, Bank of Canada, Ottawa, Ontario K1A 0G9, Canada)

Abstract

This paper shows that in consumer search markets, discriminatory trade promotions create more profits for manufacturers than uniform pricing. The mechanism relies on consumers having heterogeneous search cost and applies even if they have identical demand. By giving some, but not all, retailers a trade promotion, manufacturers create more competition between retailers and boost demand. Relative to uniform pricing retailers who receive the trade promotion sell to a disproportionately larger share of low search cost consumers who are more price sensitive, making these retailers compete stronger. Retailers that do not receive the trade promotion lower their margins, serve a smaller customer base, and are keen to prevent more consumers from leaving.

Suggested Citation

  • Maarten Janssen & Edona Reshidi, 2023. "Discriminatory Trade Promotions in Consumer Search Markets," Marketing Science, INFORMS, vol. 42(2), pages 401-422, March.
    • Handle: RePEc:inm:ormksc:v:42:y:2023:i:2:p:401-422
    DOI: 10.1287/mksc.2022.1380
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    References listed on IDEAS

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