48 Pages Posted: 15 Feb 2016 Last revised: 9 Jan 2017
Date Written: February 10, 2016
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: 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