Discriminatory Trade Promotions in Consumer Search Markets

Maarten Janssen, Edona Reshidi

Publications: Contribution to journalArticlePeer Reviewed

Abstract

This paper shows that in consumer search markets, discriminatory trade promotions create more profits for manufacturers than uniform pricing. The mechanism relies on consumers having heterogeneous search cost and applies even if they have identical demand. By giving some, but not all, retailers a trade promotion, manufacturers create more competition between retailers and boost demand. Relative to uniform pricing retailers who receive the trade promotion sell to a disproportionately larger share of low search cost consumers who are more price sensitive, making these retailers compete stron-ger. Retailers that do not receive the trade promotion lower their margins, serve a smaller customer base, and are keen to prevent more consumers from leaving.

Original languageEnglish
Pages (from-to)401-422
Number of pages22
JournalMarketing Science: the marketing journal of INFORMS
Volume42
Issue number2
Early online date2023
DOIs
Publication statusPublished - 1 Mar 2023

Austrian Fields of Science 2012

  • 502013 Industrial economics

Keywords

  • HBE
  • Cat1
  • consumer search
  • vertical relations
  • trade promotions

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