A Theory of Retailer Price Promotion Using Economic Foundations: It's All Incremental

46 Pages Posted: 21 Dec 2014

See all articles by Kurt Jetta

Kurt Jetta

TABS Group

Erick W. Rengifo

Fordham University - Department of Economics - Center for International Policy Studies (CIPS)

Date Written: December 19, 2014

Abstract

This paper presents the Theory of Retailer Price Promotions (TRPP) for consumer packed goods (CPGs). Specifically, the theory states that incremental retail sales generated by promotional price discounts are entirely incremental to the promoting manufacturer, the promoting retailer and the category, overall. In general, this implies that there is no post-period reduction in sales (dip) either in the short or long-term, nor is there a reduction of sales for competing brands, nor is there a reduction of sales for the promoted item in competing retailers. It is a Complete Category Expansion Effect (CCEE). The paper discusses the underlying theories of consumer demand that support the CCEE and the lack of economic rationale offered by prior literature. A calibration-simulation example is offered to support the TRPP.

Keywords: Microeconomics, Consumer Demand Theory, Consumer Packaged Goods

JEL Classification: M30, M31, C01, C11

Suggested Citation

Jetta, Kurt and Rengifo, Erick W., A Theory of Retailer Price Promotion Using Economic Foundations: It's All Incremental (December 19, 2014). Fordham University Schools of Business Research Paper No. 2540570. Available at SSRN: https://ssrn.com/abstract=2540570 or http://dx.doi.org/10.2139/ssrn.2540570

Kurt Jetta

TABS Group ( email )

2 Corporate Drive, Suite 254
Shelton, CT 06484
United States

Erick W. Rengifo (Contact Author)

Fordham University - Department of Economics - Center for International Policy Studies (CIPS) ( email )

United States
0017188174061 (Phone)
0017188173518 (Fax)

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