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Coupons and `everyday low prices': price competition with multiple instruments

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  • Lester Kwong

Abstract

A simple two-stage game is examined, where firms compete in prices by chosen pricing instruments. Those considered include a simple, uniform pricing technology and a promotional pricing technology like an advertised discount coupon. Consumers are separated by types, informed and uninformed. Therefore, a motive for price competition exists for the purpose of separating the two types of consumers. It is shown that the sustainability of an asymmetric choice of pricing instrument between the two firms will prevail in a duopoly market in equilibrium. Consequently, the coexistence of two different pricing schemes is viable even when firms are otherwise symmetric.

Suggested Citation

  • Lester Kwong, 2003. "Coupons and `everyday low prices': price competition with multiple instruments," Canadian Journal of Economics, Canadian Economics Association, vol. 36(2), pages 443-462, May.
    • Handle: RePEc:cje:issued:v:36:y:2003:i:2:p:443-462
    DOI: 10.1111/1540-5982.t01-1-00008
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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