Question

What are the welfare of using coupons to price discriminate? (Consumer, producer, social) What can the government do to regulate the use of coupons?

Answer 1

Coupons are a very powerful way to discriminate in terms of price. Customers who are very responsive to price changes— that is, very elastic demand from customers are likely to take time to find coupons that effectively lower the price of the good. On the other hand, consumers who are less open to price changes are not as likely to take the time to find coupons because of their less flexible demand. You start by setting a single price for the good when you use coupons. Then the price is lower for customers who have a coupon. There are two important points on coupons to be observed. Coupons work by correlating price-sensitivity with time value. If the least price-sensitive for the product is the people with a low time cost, coupons will not work for the seller. That is, coupons offer discounts for those who have a low time price (and some who are obsessive). The seller wants to offer people with elastic demand discounts. Coupons are therefore effective if the people with a low time value are usually the people with elastic demand. For example, pork rind coupons are unlikely to be effective tools for price discrimination since people with low incomes may be willing to pay more for pork rinds on average than people with high incomes.

While impression-based metrics are less important for affiliate marketers, the principles are the same: transparency about ad placement and trust in the efficacy of sales generated through the channel builds trust and confidence. It follows logically that this in turn helps to strengthen long-term relationships and increase the likelihood of increased investment. Note that the first foray into self-regulation is the toughest for companies that have yet to agree on any industry standardization. It can be hard to bring together arch rivals, but the industry is larger than any company and it becomes surprisingly easy to operate within it as soon as a structure is created. It will require the involvement of senior stakeholders and the involvement of those involved.