Discriminatory Trade Promotions in Consumer Search Markets

Maarten Janssen and Edona Reshidi ()
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Edona Reshidi: Banking and Payments Department, Bank of Canada, Ottawa, Ontario K1A 0G9, Canada

Marketing Science, 2023, vol. 42, issue 2, 401-422

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 stronger. 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.

Keywords: trade promotions; consumer search; vertical relations (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:42:y:2023:i:2:p:401-422

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