Marketing, Price Discrimination, and Welfare

• Published in: Southern economic journal Vol. 49; no. 3; pp. 847 - 852
• Main Author: La Croix, Sumner J.
• Format: Journal Article
• Language: English
• Published: Chapel Hill, N.C., etc Southern Economic Association and the University of North Carolina at Chapel Hill 01-01-1983; Southern Economic Association and the University of North Carolina; Southern Economic Association
• Subjects: Communications; Consumer prices; Coupons; Customers; Demand; Discount coupons; Discrimination; Economic theory; Elasticity of demand; List prices; Marginal costs; Market prices; Marketing; Monopoly; Price discrimination; Prices; Purchasing; Transaction costs
• ISSN: 0038-4038; 2325-8012
• DOI: 10.2307/1058721

To determine, prior to the implementation of a price discrimination plan, whether welfare will increase, it is necessary to have information about the second and third derivatives of the relevant demand functions. It is important to be able to evaluate the implications of such pricing techniques as cents-off coupons and rebate plans because marketers are using these pricing techniques more frequently to accomplish a variety of goals. An analysis is undertaken in which it is assumed that the coupon discount is limited to one per customer. It is concluded that a firm's use of coupon pricing must lead to an increase in the good's output and to an improvement in welfare. As long as the price of additional units of the product remain unchanged, the positive welfare effects are reliable and one need not worry about the shape of the demand curves, the marginal cost curves, or the degree of substitution between markets.