A Model Of Price Promotions With Consumer Search

This paper presents a price discrimination model of price promotions. The distinguishing feature of our model is the explicit distinction between regular and promotional prices: Regular prices are chosen first, then promotional prices. Further, while regular prices are always available to everyone, promotional prices are only available when offered, and only to those who search for them. We show that even a monopolist will offer random promotions under these circumstances. Furthermore, as search costs increase, the frequency and depth of promotions increase. With competition for the promotion-oriented consumers, the seller becomes more aggressive in his promotional policies, even more so as search costs increase. The high reservation price consumers, however, end up worse off with competition.

[1]  Dale O. Stahl,et al.  Oligopolistic Pricing with Sequential Consumer Search , 1989 .

[2]  A. Kashyap,et al.  Sticky Prices: New Evidence from Retail Catalogs , 1994 .

[3]  J. Sobel,et al.  Cyclic Pricing by a Durable Goods Monopolist , 1984 .

[4]  Patricia B. Reagan.  Inventory and Price Behaviour , 1982 .

[5]  J. Sobel.  DURABLE GOODS MONOPOLY WITH ENTRY OF NEW CONSUMERS , 1991 .

[6]  Dale O. Stahl,et al.  Oligopolistic pricing with heterogeneous consumer search , 1996 .

[7]  James D. Hess,et al.  A Theory of Channel Price Promotions , 1991 .

[8]  Dan Kovenock,et al.  It takes two to tango: Equilibria in a model of sales , 1992 .

[9]  P. Klemperer.  The Competitiveness of Markets with Switching Costs , 1987 .

[10]  Jagmohan S. Raju,et al.  The Effect of Package Coupons on Brand Choice , 1994 .

[11]  A. Blinder.  Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics , 1981 .

[12]  J. Stiglitz,et al.  Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion , 1977 .

[13]  A. Padilla.  Mixed Pricing In Oligopoly With Consumer Switching Costs , 1992 .

[14]  Y. Shilony.  Mixed pricing in oligopoly , 1977 .

[15]  Z. John Zhang,et al.  Competitive Coupon Targeting , 1995 .

[16]  C. Narasimhan.  A Price Discrimination Theory of Coupons , 1984 .

[17]  R. Rao.  Pricing and Promotions in Asymmetric Duopolies , 1991 .

[18]  Helmut Bester,et al.  Coupons and Oligopolistic Price Discrimination , 1994 .

[19]  H. Varian.  A Model of Sales , 1980 .

[20]  S. Salop,et al.  The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination , 1977 .

[21]  C. Narasimhan.  Competitive Promotional Strategies , 1988 .

[22]  K. Judd,et al.  EQUILIBRIUM PRICE DISPERSION , 1983 .