Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals

Posted: 13 May 2002

See all articles by Aviv Nevo

Aviv Nevo

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

Abstract

We explore the relationship between shelf prices and manufacturers' coupons for 25 ready-to-eat breakfast cereals. We find that shelf prices are lower during periods when coupons are available. This result is inconsistent with static monopoly price discrimination under a broad range of assumptions. We present evidence that is inconsistent with both dynamic theories of price discrimination and explanations of couponing based on the vertical relationship between manufacturers and retailers. We find support for models of price discrimination in oligopoly settings as well as suggestions that firmwide incentives may induce managers to use coupons and price cuts simultaneously. Finally, lagged coupons have a positive effect on current sales, suggesting that coupons are used to induce repurchase.

Suggested Citation

Nevo, Aviv and Wolfram, Catherine D., Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals. RAND Journal of Economics, Vol. 33, No. 2. Available at SSRN: https://ssrn.com/abstract=307728

Aviv Nevo (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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