Coupons versus Rebates: An Economic–Mathematical Comparative Analysis with Policy Implications

Author:

Lin Tin-Chun1ORCID

Affiliation:

1. School of Business and Economics, Indiana University—Northwest, 3400 Broadway, Gary, IN 46408, USA

Abstract

It is very important to understand how promotions offered by sellers to consumers influence consumer and seller behaviors because it helps us study how consumers make their purchase decisions and how sellers determine their sale strategies. Unlike past studies which utilized the classical price discrimination dilemma and focused on sellers’ aspect to divide consumers into two types (higher/lower reservation prices), we focused on the consumers’ perspective and applied neoclassical consumer choice theory to develop a two-period mathematical utility-maximization model to study how different promotions influence consumer and seller behaviors. This mathematical study uncovered several key findings: (1) coupons offer consumers a greater discount compared to rebates with identical discount rates; (2) impatient consumers exhibit a preference for coupons over rebates; (3) coupons generate higher sales than rebates; and (4) sellers may adopt the coupon policy for low-ticket products and the rebate policy for high-ticket products.

Publisher

MDPI AG

Reference32 articles.

1. Roehrig, C. (2024, May 08). Rebates, Coupons, PBMs, and the Cost of the Prescription Drug Benefit. Available online: https://www.healthaffairs.org/content/forefront/rebates-coupons-pbms-and-cost-prescription-drug-benefit.

2. Rebecca, L. (2024, May 08). Coupon Statistics. Available online: https://www.creditdonkey.com/coupon-statistics.html#:~:text=94%25%20of%20people%20use%20coupons,because%20they%20have%20a%20coupon.

3. PYMNTS (2024, May 08). Rebates Make Consumers 75% More Likely to Purchase. Available online: https://www.pymnts.com/news/retail/2022/rebates-make-consumers-75-pct-more-likely-to-purchase/#:~:text=studies%20have%20shown%20that%20rebates,still%20meeting%20modern%20consumer%20expectations.

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