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An Economic Analysis of Add‐on Discounts
Author(s) -
Adachi Takanori,
Ebina Takeshi
Publication year - 2012
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1564
Subject(s) - monopolistic competition , construct (python library) , microeconomics , economics , base (topology) , business , advertising , commerce , computer science , monopoly , mathematical analysis , mathematics , programming language
This paper provides an economic explanation for what determines whether a seller should offer add‐on discounts (e.g., cable TV subscription packages). We construct a monopolistic model with two types of consumer heterogeneity: (i) those who always buy an add‐on when they purchase a base good (‘premium’ consumers); and (ii) those who do not necessarily buy the add‐on (‘economy’ consumers). It is shown that the greater the number of ‘premium’ consumers, the less desirable add‐on discounts are for a seller. Copyright © 2011 John Wiley & Sons, Ltd.