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A Market Experiment on Trade Promotion Budget and Allocation

  • Gomez, Miguel I.
  • Rao, Vithala R.
  • Yuan, Hong

We design a market experiment to examine how firm size and ability to choose trade promotion types influence trade promotion budget, its allocation and channel profits. Our experimental results show that larger manufacturers offer smaller trade promotion budgets. Manufacturers with ability to influence the allocation decision favor scan-backs while retailers favor off-invoices. Trade promotion decisions affect profit sharing within the channel but not total channel profit. We validate these findings with an econometric analysis of survey data from supermarket executives. Overall, our results suggest that market experiments can shed light on trade promotion outcomes for which industry data are sparse.

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File URL: http://purl.umn.edu/55928
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Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 55928.

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Date of creation: 16 Sep 2009
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Handle: RePEc:ags:cudawp:55928
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  1. Kadiyali, Vrinda & Vilcassim, Naufel & Chintagunta, Pradeep, 1998. "Product line extensions and competitive market interactions: An empirical analysis," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 339-363, November.
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  7. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  8. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  9. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2008. "A Price Discrimination Model of Trade Promotions," Marketing Science, INFORMS, vol. 27(5), pages 779-795, 09-10.
  10. 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.
  11. Stephen F. Hamilton, 2003. "Slotting Allowances as a Facilitating Practice by Food Processors in Wholesale Grocery Markets: Profitability and Welfare Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 797-813.
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