TITLE

Cross-Market Discounts

AUTHOR(S)
Goić, Marcel; Jerath, Kinshuk; Srinivasan, Kannan
PUB. DATE
January 2011
SOURCE
Marketing Science;Jan/Feb2011, Vol. 30 Issue 1, p134
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Firms in several markets attract consumers by offering discounts in other unrelated markets. This promotion strategy, which we call "cross-market discounts," has been successfully adopted in the last few years by many grocery retailers in partnership with gasoline retailers across North America, Europe, and Australia. In this paper, we use an analytical model to investigate the major forces driving the profitability of this novel promotion strategy. We consider a generalized scenario in which purchases in a source market lead to price discounts redeemable in a target market. Our analysis shows that this strategy can be a revenue driver by simultaneously increasing prices as well as sales in the source market, even though we assume the demand curve to be downward sloping in price. Moreover, it distributes additional consumption (motivated by the discount) in two markets, and under diminishing marginal returns from consumption, this can simultaneously increase firm profits and consumer welfare more effectively than traditional nonlinear pricing strategies. Our study provides many other interesting insights as well, and our key results are in accordance with anecdotal evidence obtained from managers and industry publications.
ACCESSION #
57961481

 

Related Articles

  • Flexible Consumer Demand Functions and Linear Estimation:Comment. Wohlgenant, Michael K. // American Journal of Agricultural Economics;Feb85, Vol. 67 Issue 1, p141 

    Comments on an article which presented a model of consumer demand functions and linear estimation. Criticism on the method of derivation used; Details of the Hicksian demand function; Limitations of the model.

  • On Experimental Research in Oligopoly. Friedman, J. W. // Review of Economic Studies;Oct69, Vol. 36 Issue 4, p399 

    This article focuses on a detailed review and discussion of a group of oligopoly experiments. These experiments are all concerned with the same economic question that does standard oligopoly theory predict behaviour in markets in which the usual textbook assumptions are met. Oligopoly theory is...

  • Flexible consumer Demand Functions and Linear Estimation: Reply. Swamy, Gurushri; Binswanger, Hans // American Journal of Agricultural Economics;Feb85, Vol. 67 Issue 1, p143 

    Comments on an article which criticized a model of consumer demand functions and linear estimation. Relationship between the approximation of utility and real income; Limitations of its applications.

  • More thought about demand revealing. Tullock, Gordon // Public Choice;1982, Vol. 38 Issue 2, p167 

    Debates over individual demand curves. Two component parts of demand curves; Details of the demand revealing process; Description of the actual shape of the joint curve.

  • The Efficiency of Some Alternative Ridge Estimators for Seemingly Unrelated Regressions. El-Salam, Moawad El-Fauah Abd // Asian Journal of Mathematics & Statistics;Sep2011, Vol. 4 Issue 3, p128 

    Parametric Seemingly Unrelated Regression (SUR) models are used for multivariate regression analysis. However, statistical literature has revealed that, multicollinearity often affects the efficiency of SUR estimators. One of the popular methods for coping with Multicollinearity problem is ridge...

  • Analysis of Triopoly Game with Isoelastic Demand Function and Heterogeneous Players. Hong-Xing Yao; Lian Shi; Hao Xi // Discrete Dynamics in Nature & Society;2012, Special section p1 

    We analyze a triopoly game model with fully heterogeneous players when the demand function is isoelastic. The three players were considered to be bounded rational, adaptive, and naïve. Existing equilibrium points and their locally asymptotic stability conditions are studied. Complexity of the...

  • Investigating Dynamic Multifirm Market Interactions in Price and Advertising. Vilcassim, Naufel J.; Kadiyali, Vrinda; Chintagunta, Pradeep K. // Management Science;Apr99, Vol. 45 Issue 4, p499 

    Diagnosing the nature and magnitude of competitive interactions among firms is important for developing effective marketing strategies. In this paper, we formulate a game-theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given product...

  • THE DEATH OF THE PHILLIPS CURVE RECONSIDERED. Brinner, Roger E. // Quarterly Journal of Economics;Aug77, Vol. 91 Issue 3, p389 

    This article discusses A.W. Phillips' empirical study which focused on inflation-unemployment. The subsequent literature on this study identified several potential defects of the Phillips approach. The first alleged problem is that of motivating an inflation-excess demand mechanism if the world...

  • Estimating Price Elasticities with Theory-Based Priors. Montgomery, Alan L.; Rossi, Peter E. // Journal of Marketing Research (JMR);Nov99, Vol. 36 Issue 4, p413 

    The authors show how price elasticity estimates can be improved in demand systems that involve multiple brands and stores. They treat these demand models in a hierarchical Bayesian framework. Unlike in more standard Bayesian hierarchical treatments, the authors use prior information based on the...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics