Discriminatory Trade Promotions in Consumer Search Markets

Author(s)
Maarten Janssen, Edona Reshidi
Abstract

This paper shows that in consumer search markets, discriminatory trade promotions create more profits for manufacturers than uniform pricing. The mechanism relies on consumers having heterogeneous search cost and applies even if they have identical demand. By giving some, but not all, retailers a trade promotion, manufacturers create more competition between retailers and boost demand. Relative to uniform pricing retailers who receive the trade promotion sell to a disproportionately larger share of low search cost consumers who are more price sensitive, making these retailers compete stron-ger. Retailers that do not receive the trade promotion lower their margins, serve a smaller customer base, and are keen to prevent more consumers from leaving.

Organisation(s)
Department of Economics
Journal
Marketing Science: the marketing journal of INFORMS
Volume
42
Pages
401-422
No. of pages
22
ISSN
0732-2399
DOI
https://doi.org/10.1287/mksc.2022.1380
Publication date
2023
Peer reviewed
Yes
Austrian Fields of Science 2012
502013 Industrial economics
Keywords
ASJC Scopus subject areas
Marketing, Business and International Management
Portal url
https://ucrisportal.univie.ac.at/en/publications/a51a3268-77b8-49a0-9ec8-cd8c7c1775ee