Do Coupons Expand or Cannibalize Revenue? Evidence from an e-Market

48 Pages Posted: 15 Feb 2016 Last revised: 9 Jan 2017

Imke Reimers

Northeastern University - Department of Economics

Claire (Chunying) Xie

NERA Economic Consulting

Date Written: February 10, 2016

Abstract

Coupons have been a mainstay of marketing for decades all over the world, but their short run and long run effects on sales are still not understood fully. We develop a model of consumer demand to empirically study whether firms can indeed use coupons as a means to price discriminate by attracting new consumers without losing (cannibalizing) revenue from existing ones, and whether these new consumers return to the firm after the price promotion. In addition, we ask what types of businesses are most likely to benefit from such promotions. Following alcohol revenue for restaurant using e-coupons, we find that offering a coupon increases demand both during and after the promotion, suggesting that coupons can be used both to price discriminate and to advertise. Still, while coupons increase profits on average, the effect on each firm's profits depends on the firm's characteristics.

Keywords: Coupons, price discrimination, revenue cannibalization, market expansion, daily-deal sites

JEL Classification: L1, M31

Suggested Citation

Reimers, Imke and Xie, Claire (Chunying), Do Coupons Expand or Cannibalize Revenue? Evidence from an e-Market (February 10, 2016). Available at SSRN: https://ssrn.com/abstract=2730922 or http://dx.doi.org/10.2139/ssrn.2730922

Imke Reimers (Contact Author)

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Chunying Xie

NERA Economic Consulting ( email )

50 Main Street, 14th Floor
White Plains, NY 10606
United States

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