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Martimort, David
and Pouyet, Jérôme
(2024)
Promotional Allowances: Loss Leading as an Incentive Device.
TSE Working Paper, n. 24-1564, Toulouse
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Abstract
A retailer may boost demand for a manufacturer’s product through unobservable promotional efforts. Fixed fees cannot be used to freely allocate profit within the vertical structure. When manufacturers have market power, the equilibrium wholesale contract features a retail price below cost together with a rebate for incremental units bought by the retailer when effort has succeeded in boosting sales. Loss leading emerges as an incentive device in such an incomplete contracting scenario. A ban on below-cost pricing leads to a higher retail price and a lower promotional effort.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | September 2024 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Vertical restraints, loss leading, promotional allowances, below-cost, pricing |
| JEL Classification: | L11 - Production, Pricing, and Market Structure; Size Distribution of Firms L42 - Vertical Restraints; Resale Price Maintenance; Quantity Discounts L81 - Retail and Wholesale Trade; Warehousing; e-Commerce |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse Capitole |
| Site: | UT1 |
| Date Deposited: | 09 Sep 2024 06:47 |
| Last Modified: | 09 Sep 2024 06:47 |
| OAI Identifier: | oai:tse-fr.eu:129692 |
| URI: | https://publications.ut-capitole.fr/id/eprint/49669 |
