Two Level Price Discrimination and Vertical Relationship
University of Hong Kong - School of Economics and Finance
March 5, 2012
If an upstream manufacturer can use coupons to price discriminate, the downstream retailer can also use coupons to price discriminate. In doing so, the retailer takes a share of the price discrimination profit from the manufacturer. To gain a larger profit share, the retailer has an incentive to commit to double coupon offers, rather than to issue separate retailer coupons. While coupon usage is endogenous, output effect is different from other second-degree price discrimination such as quantity discounts. Price discrimination using coupons reduces welfare, and there is a second dimension of double marginalization. Implications for vertical coordination are discussed.
Number of Pages in PDF File: 40
Keywords: commitment, coupon discounts, double couponing, double marginalization, vertical coordination
JEL Classification: D4, M21, M3working papers series
Date posted: February 2, 2012 ; Last revised: June 21, 2013
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