Essays on Pricing and Promotional Strategies

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Virginia Tech

This dissertation contains three essays on theoretical analysis of pricing and promotional strategies. Chapter 1 serves as a brief introduction that provides a motivation and an overview of the topics covered in the subsequent chapters.

In Chapter 2, we study optimal couponing strategies in a differentiated duopoly with repeat purchase. Both firms can distribute defensive coupons alone, defensive and offensive coupons together, or mass media coupons. They can also determine how many coupons to offer. Allowing consumers to change their tastes for the firms' products over time, we find that the optimal couponing strategy for the firms is to only distribute coupons to all of the customers who buy from them. The effects of intertemporally constant preferences and consumer myopia on the profitability of the optimal couponing are investigated as well.

Chapter 3 examines the profitability of behavior-based price discrimination (BBPD) by duopolists producing horizontally differentiated experience goods. We consider a three-stage game in which the firms first make price discrimination decisions followed by two-stage pricing decisions. The main findings are: (i) there are two subgame perfect Nash equilibria where both firms do not collect information about consumers' purchase histories so that neither firm price discriminates and where both firms collect consumer information to practice BBPD; and (ii) BBPD is more profitable than uniform pricing if sufficiently many consumers have a poor experience with the firms' products. The asymmetric case where one firm produces experience goods and the other search goods is also investigated.

Chapter 4 provides a possible explanation of the fact that one ticket price is charged for all movies (regardless of their quality) in the motion-picture industry. Considering a model a la Hotelling in which moviegoers form their beliefs about movie quality through pricing schemes to which an exhibitor commits, we characterize the conditions under which committing to uniform pricing is more profitable than committing to variable pricing. The welfare consequences of a uniform pricing commitment and some extensions of the model are discussed as well.

Targeted Coupons, Mass Media Coupons, Behavior-Based Price Discrimination, Experience Goods, Uniform Pricing, Moviegoer's Beliefs