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The author examines the profitability and implications of online discount vouchers, a new marketing tool that offers consumers large discounts when they prepay for participating merchants' goods and services. Within a model of repeat experience good purchase, they examine two mechanisms by which a discount voucher service can benefit affiliated merchants: price discrimination and advertising. Offering vouchers is more pro table for merchants who are patient or relatively unknown, and for merchants with low marginal costs. Extensions to the model accommodate the possibilities of multiple voucher purchases and merchant price re-optimization.
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