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

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.

Keywords

• economic–mathematical comparative analysis
• coupons
• rebates
• theory of consumer choice
• marketing strategies