Abstract
We study the puzzle that sellers often employ diverse strategies in terms of carrying multiple brands and holding periodic sales. These two selling tools can be substitute instruments to induce consumer self selection and implement price discrimination. We analyze the factors that affect a seller’s choice between the two pricing instruments and show how different combinations of the two instruments can be optimal under alternative market conditions. A seller may, surprisingly, increase her total number of offers when it becomes more costly to carry brands or hold sales if there are decreasing marginal costs of the alternative selling tool.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Ausubel L., Deneckere R. (1989) Reputation in bargaining and durable goods monopoly. Econometrica 57: 511–531
Bagnoli M., Salant S. W., Swierzbinski J. E. (1995) Intertemporal self-selection with multiple buyers. Economic Theory 5: 513–526
Bental B., Spiegel M. (1995) Network competition, product quality, and market coverage in the presence of network externalities. Journal of Industrial Economics 43: 197–208
Besanko D., Dubé J.-P., Gupta S. (2005) Own-brand and cross-brand retail pass-through. Marketing Science 24: 123–137
Board S. (2008) Durable-goods monopoly with varying demand. Review of Economic Studies 75: 391–413
Bolton P., Bonanno G. (1988) Vertical restraints in a model of vertical differentiation. Quarterly Journal of Economics 103: 555–570
Bonnisseau, J., & Lahmandi-Ayed, R. (2006). Vertical differentiation: Multiproduct strategy to face entry? Topics in Theoretical Economics, 6(1), Article 15. Available at: http://www.bepress.com/bejte/topics/vol6/iss1/art15.
Bulow J. (1982) Durable-goods Monopolists. Journal of Political Economy 90: 314–332
Butz D. (1990) Durable-good monopoly and best-price provisions. American Economic Review 80: 1062–1076
Chintagunta P., Erdem T., Rossi P., Wedel M. (2006) Structural modeling in marketing: Review and assessment. Marketing Science 25: 604–616
Coase R. H. (1972) Durability and monopoly. Journal of Law and Economics 15: 143–149
Conlisk J., Gerstner E., Sobel J. (1984) Cyclic pricing by a durable goods monopolist. Quarterly Journal of Economics 99: 489–505
Deneckere R., Liang M.-Y. (2008) Imperfect durability and the coase conjecture. RAND Journal of Economics 39: 1–19
Donnenfeld S., White L. J. (1988) Product variety and the inefficiency of monopoly. Economica 55: 393–401
Gabszewicz J. J., Shaked A., Sutton J., Thisse J. (1986) Segmenting the market: The monopolist’s optimal product mix. Journal of Economic Theory 39: 273–289
Gul F., Sonnenschein H., Wilson R. (1986) Foundations of dynamic monopoly and the coase conjecture. Journal of Economic Theory 39: 155–190
Hall, J. M., Kopalle, P. K., & Krishna, A. (2003). A category management model of retailer dynamic pricing and ordering decisions: Normative and empirical analysis. Working paper, Tuck School of Business at Dartmouth, Hanover, New Hampshire.
Jing B. (2007) Network externalities and market segmentation in a monopoly. Economics Letters 95: 7–13
Kahn C. (1986) The durable goods monopolist and consistency with increasing costs. Econometrica 54: 275–294
Koh W. T. (2006) The micro-foundations of intertemporal price discrimination. Economic Theory 27: 393–410
Krishna, A. (1989). Consumer expectations of deal frequency and sale price and how these expectations affect purchase behavior. Dissertation, New York University.
Kühn K. (1998) Intertemporal price discrimination in frictionless durable goods monopolies. Journal of Industrial Economics 46: 101–114
Kumar P. (2002) Price and quality discrimination in durable goods monopoly with resale trading. International Journal of Industrial Organization 20: 1313–1339
Lal R., Rao R. (1997) Supermarket competition: The case of every day low pricing. Marketing Science 16: 60–80
Landsberger M., Meilijson I. (1985) Intertemporal price discrimination and sales strategy under incomplete information. Rand Journal of Economics 16: 424–430
Maskin E., Riley J. (1984) Monopoly with incomplete information. Rand Journal of Economics 15: 171–196
Mussa M., Rosen S. (1978) Monopoly and product quality. Journal of Economic Theory 18: 301–317
P’ng I., Lehman D. (2007) Managerial economics. Wiley-Blackwell, Hoboken, New Jersey
Salant S. W. (1989) When is inducing self-selection suboptimal for a monopolist?. Quarterly Journal of Economics 104: 391–397
Shaked A., Sutton J. (1982) Relaxing price competition through product differentiation. Review of Economic Studies 49: 3–13
Silva-Risso J. M., Bucklin R. E., Morrison D. G. (1999) A decision support system for planning manufacturers’ sales promotion calendars. Marketing Science 18(3): 274–300
Sobel J. (1984) The timing of sales. Review of Economic Studies 51: 353–368
Sobel J. (1991) Durable goods monopoly with entry of new consumers. Econometrica 59: 1455–1485
Spence A. M. (1977) Nonlinear prices and welfare. Journal of Public Economics 8: 1–18
Stokey N. L. (1979) Intertemporal price discrimination. Quarterly Journal of Economics 93: 355–371
Stokey N. L. (1981) Rational expectations and durable goods pricing. Bell Journal of Economics 12: 112–128
Tirole J. (1988) The theory of industrial organization. MIT Press, Cambridge, MA
Van Cayseele P. (1991) Consumer rationing and the possibility of intertemporal price discrimination. European Economic Review 35: 1473–1484
Waldman M. (2003) Durable goods theory for real world markets. Journal of Economic Perspectives 17: 131–154
Xia, T., & Sexton, R. J. (2007, October 11) Brand choices and periodic sales as substitute instruments for monopoly price Discrimination. SSRN Working Paper. Retrieved April 22, 2010, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1020759.
Zhang J., Krishnamurthi L. (2004) Customizing promotions in online stores. Marketing Science 23: 561–578
Acknowledgments
We wish to acknowledge helpful comments from Lawrence J. White, two anonymous referees, Giacomo Bonanno, and Michael Caputo. All remaining errors are ours.
Open Access
This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
About this article
Cite this article
Xia, T., Sexton, R.J. Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination. Rev Ind Organ 36, 333–349 (2010). https://doi.org/10.1007/s11151-010-9249-5
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11151-010-9249-5