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Prices and Coupons for Breakfast Cereals

  • Aviv Nevo
  • Catherine Wolfram

This paper explores the relationship between shelf prices and manufacturers' coupons for 25 ready-to-eat breakfast cereals. Contrary to the predictions of static monopoly price discrimination, we find the shelf prices for a particular brand in a particular city are generally lower during periods when coupons are available. We find evidence that is also inconsistent with dynamic theories of pricing that predict lower prices and coupons after periods of low demand, and find little support for explanations of couponing based on the vertical relationship between manufacturers and retailers. We find some support for models of price discrimination in oligopoly settings that suggest inter-brand competition can cause all prices to be lower than the uniform (non-discriminatory) price. We also find some evidence suggesting that firm-wide incentives may induce managers to use coupons and price cuts simultaneously in order, for example, to meet market share targets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6932.

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Date of creation: Feb 1999
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Publication status: published as Nevo, Aviv and Catherine Wolfram. "Why Do Manufacturers Issue Coupons? An Empirical Analysis Of Breakfast Cereals," Rand Journal of Economics, 2002, v33(2,Summer), 319-339.
Handle: RePEc:nbr:nberwo:6932
Note: IO
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  1. Chakravarthi Narasimhan, 1984. "A Price Discrimination Theory of Coupons," Marketing Science, INFORMS, vol. 3(2), pages 128-147.
  2. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Food Marketing Policy Center Research Reports 037, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  3. Eppen, Gary D & Liebermann, Yehoshua, 1984. "Why Do Retailers Deal? An Inventory Explanation," The Journal of Business, University of Chicago Press, vol. 57(4), pages 519-30, October.
  4. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. 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 1437-45, December.
  6. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
  7. Jeongwen Chiang, 1995. "Competing Coupon Promotions and Category Sales," Marketing Science, INFORMS, vol. 14(1), pages 105-122.
  8. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
  9. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  10. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
  11. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
  12. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
  13. Scott A. Neslin & Caroline Henderson & John Quelch, 1985. "Consumer Promotions and the Acceleration of Product Purchases," Marketing Science, INFORMS, vol. 4(2), pages 147-165.
  14. Scott A. Neslin, 1990. "A Market Response Model for Coupon Promotions," Marketing Science, INFORMS, vol. 9(2), pages 125-145.
  15. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
  16. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-71, November.
  17. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  18. 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.
  19. Lott, John R, Jr & Roberts, Russell D, 1991. "A Guide to the Pitfalls of Identifying Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 14-23, January.
  20. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
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