IDEAS home Printed from
   My bibliography  Save this article

On the optimality of coupon books


  • John G. Wilson

    () (University of Western Ontario)

  • Jing Chen

    () (Dalhousie University)


Abstract Our research was motivated by the challenge that a discount airline can set prices below traditional levels. One possible response for the traditional airline is to offer a book of coupons at a fixed price, in an attempt to retain or even increase market share. Offering coupon books is a way to induce changes in customer buying practices. Here we assume that each customer acts strategically in deciding whether or not to switch airlines and whether to buy the coupon book or the regular tickets. Other than price, the number of coupons in the book provides a way to segment the market. Airlines usually have data on circumstances where no coupon books were offered, but they generally do not have the luxury of experimenting by offering coupon books and gauging the response. The focus for this work is therefore: using only the data that is currently available (from the non-coupon case), are there key indicators that can help an airline decide whether or not to offer coupon books? We demonstrate that the crucial factor is the company’s current market share, and we show how to establish a threshold market share above which coupon books should not be offered. This becomes useful when advising a manager on a course of action, as the decision can be based on knowledge of current market share and beliefs about future market share. We show that there can be a broad region in which a manager can tolerate the give and take involved in behavioral and group decision making.

Suggested Citation

  • John G. Wilson & Jing Chen, 2018. "On the optimality of coupon books," Annals of Operations Research, Springer, vol. 268(1), pages 405-423, September.
  • Handle: RePEc:spr:annopr:v:268:y:2018:i:1:d:10.1007_s10479-017-2512-5
    DOI: 10.1007/s10479-017-2512-5

    Download full text from publisher

    File URL:
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Youyi Feng & Guillermo Gallego, 1995. "Optimal Starting Times for End-of-Season Sales and Optimal Stopping Times for Promotional Fares," Management Science, INFORMS, vol. 41(8), pages 1371-1391, August.
    2. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    3. repec:pal:jorsoc:v:54:y:2003:i:3:d:10.1057_palgrave.jors.2601497 is not listed on IDEAS
    4. Meissner, Joern & Strauss, Arne, 2012. "Network revenue management with inventory-sensitive bid prices and customer choice," European Journal of Operational Research, Elsevier, vol. 216(2), pages 459-468.
    5. 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.
    6. 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.
    7. Chen, Jing & Bell, Peter C., 2012. "Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure," International Journal of Production Economics, Elsevier, vol. 136(1), pages 56-66.
    8. Hamilton Emmons & Stephen M. Gilbert, 1998. "Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods," Management Science, INFORMS, vol. 44(2), pages 276-283, February.
    9. Bing Jing & Zhong Wen, 2008. "Finitely Loyal Customers, Switchers, and Equilibrium Price Promotion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 683-707, September.
    10. Gerstner, Eitan & Hess, James D & Holthausen, Duncan M, 1994. "Price Discrimination through a Distribution Channel: Theory and Evidence," American Economic Review, American Economic Association, vol. 84(5), pages 1437-1445, December.
    11. repec:pal:jorsoc:v:57:y:2006:i:4:d:10.1057_palgrave.jors.2602012 is not listed on IDEAS
    12. Youyi Feng & Baichun Xiao, 2000. "Optimal Policies of Yield Management with Multiple Predetermined Prices," Operations Research, INFORMS, vol. 48(2), pages 332-343, April.
    13. Gerstner, Eitan & Hess, James D, 1991. "A Theory of Channel Price Promotions," American Economic Review, American Economic Association, vol. 81(4), pages 872-886, September.
    14. Ben-Zion, U. & Hibshoosh, A. & Spiegel, U., 1999. "The Optimal Face Value of a Discount Coupon," ISER Discussion Paper 0480, Institute of Social and Economic Research, Osaka University.
    15. Youyi Feng & Baichun Xiao, 2000. "A Continuous-Time Yield Management Model with Multiple Prices and Reversible Price Changes," Management Science, INFORMS, vol. 46(5), pages 644-657, May.
    16. Scott Fay, 2004. "Partial-Repeat-Bidding in the Name-Your-Own-Price Channel," Marketing Science, INFORMS, vol. 23(3), pages 407-418, February.
    17. Ben-Zion, Uri & Hibshoosh, Aharon & Spiegel, Uriel, 1999. "The optimal face value of a discount coupon," Journal of Economics and Business, Elsevier, vol. 51(2), pages 159-174, March.
    18. Tuo Wang & Esther Gal-Or & Rabikar Chatterjee, 2009. "The Name-Your-Own-Price Channel in the Travel Industry: An Analytical Exploration," Management Science, INFORMS, vol. 55(6), pages 968-979, June.
    19. Wilfred Amaldoss & Sanjay Jain, 2008. "Joint Bidding in the Name-Your-Own-Price Channel: A Strategic Analysis," Management Science, INFORMS, vol. 54(10), pages 1685-1699, October.
    20. Jeuland, Abel P & Narasimhan, Chakravarthi, 1985. "Dealing-Temporary Price Cuts-by Seller as a Buyer Discrimination Mechanism," The Journal of Business, University of Chicago Press, vol. 58(3), pages 295-308, July.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:268:y:2018:i:1:d:10.1007_s10479-017-2512-5. 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: (Sonal Shukla) or (Mallaigh Nolan). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.