Profitability of price promotions if stockpilling increases consumption

Linda Teunter and Ruud Teunter

No EI 2004-10, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Price promotions induce consumers to purchase higher-than-usual quantities, resulting in higher stocks that lead to increased consumption. We show for a stylized model with a single shop and a single loyal customer that because of this stockpiling effect, promotions can be profitable even if they do not attract extra customers.

Date: 2004-03-19
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