Brand Choices and Periodic Sales As Substitute Instruments for Monopoly Price Discrimination

Abstract

Carrying multiple brands and holding periodic sales are two common marketing strategies for sellers with market power. One puzzle is that sellers often employ diverse strategies in terms of using these two tools. This paper offers an explanation to this puzzle by providing a simple framework to analyze a monopoly seller's optimal marketing strategy in terms of carrying multiple brands and holding periodic sales. Few prior studies have examined contemporaneous and intertemporal price discrimination together and none establish the inherent substitutability between quality and intertemporal instruments of price discrimination demonstrated in this paper. We also analyze the factors that affect a seller's choice between contemporaneous and intertemporal price discrimination and show how different combinations of the two pricing instruments can be optimal under alternative market conditions. We show that selling strategies are more likely to involve carrying brands only when there is a narrow product quality range and/or limited consumer heterogeneity. Otherwise, the selling strategies are likely to involve both carrying brands and holding sales. We also find that a seller may, surprisingly, increase the total number of offers when it becomes more costly to carry brands or hold sales if there is decreasing marginal cost of the alternative selling tool.