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Salespromotionsinsupermarkets: Estimating their effects on profits and consumer welfare

By Victor Aguirregabiria


Preliminary and incomplete version Some countries have regulations that impose restrictions on the use of sales promotions in retail markets. The main motivation of these policies has been the protection of small retailers. This paper studies empirically the welfare implications of this type of policies. We present a model of dynamic price competition among retailers who sell several varieties of a differentiated storable good. In this model, firms use sales promotions as a mechanism to discriminate intertemporally among heterogeneous consumers. The model is estimated using scanner data from the food retailers of a US town. The estimated model is used to compute counterfactual equilibria under different restrictions on the use of sales promotions. We compare consumer surplus and the profitability of small and large retailers under the factual and the counterfactual equilibria

Topics: Sales promotions, Intertemporal price discrimination, Market
Year: 2002
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