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Coupons and price discrimination in vertically-correlated markets

Author

Listed:
  • Jin-Li Hu

    (Institute of Business and Management, National Chiao-Tung University, Taiwan)

  • Yu-Hsiu Chiou

    (Department of International Trade, Tak-Ming College, Taiwan)

  • Hong Hwang

    (Department of Economics, National Taiwan University and Sun Yat-Sen Institute for Social Sciences and Philosophy, Academia Sinica, Taiwan)

Abstract

This research analyzes the non-cooperative and cooperative strategies with respect to manufacturer and retailer coupons. In a model with one manufacturer selling its product to one retailer, it is found that the retailer can achieve third-degree price discrimination equilibrium in retail markets by issuing coupons to demanders with higher elasticity. Although facing only one retailer, the manufacturer can also achieve the same third-degree price discrimination equilibrium by issuing coupons directly to demanders of higher elasticity. However, when only one firm issues the coupon, both manufacturer and retailer coupons can help alleviate the channel profit loss due to double marginalization. If the manufacturer and the retailer non-cooperatively issue coupons, then the subgame-perfect Nash equilibrium outcomes are equivalent to those under the successive third-degree price discrimination. Moreover, cooperative strategies between the manufacturer and the retailer can eliminate double marginalization, achieve the vertical integration effect, and lead to higher profits, consumer surpluses, and social surpluses than non-cooperative coupon strategies. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:mgtdec:v:25:y:2004:i:1:p:29-40
    DOI: 10.1002/mde.1132
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    References listed on IDEAS

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    Cited by:

    1. Li, Zonghuo & Wang, Di & Yang, Wensheng & Jin, Hyun Seung, 2022. "Price, online coupon, and store service effort decisions under different omnichannel retailing models," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    2. Li, Zonghuo & Yang, Wensheng & Jin, Hyun Seung & Wang, Di, 2021. "Omnichannel retailing operations with coupon promotions," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    3. John G. Wilson & Jing Chen, 2018. "On the optimality of coupon books," Annals of Operations Research, Springer, vol. 268(1), pages 405-423, September.

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