Essays on supermarket pricing and coupon strategies

Spengler (1950) makes a distinction between horizontal and vertical integrations. Since then, double marginalization has been discussed intensively for decades. The main focus has been on how firms get rid of the inferior outcomes when there is double marginalization. The first essay of my dissertation examines double marginalization when there are two segments of consumers. If price discrimination is possible, I show that double marginalization becomes a two-dimensional problem—standard double marginalization and double price discrimination. Double price discrimination arises if successive monopolists choose the face values of rebates/coupons, as well as wholesale and retail prices, independently and non-cooperatively. Double price discrimination adds a subsidiary problem on top of double marginalization. Not only are consumers worse off, but also the firms earn less total profit from price discrimination.;Previous literature explains double couponing as a prisoner's dilemma in which supermarkets compete for larger customer shares by offering extra coupon discounts. In the second essay I view double couponing from the perspective of price discrimination. While upstream manufacturers earn profits from price discrimination, downstream retailers with market power have an incentive try to gain a share of these profits. I compare the retailer's double couponing (to double the face values of manufacturer coupons) with traditional retailer coupons. By committing to mark up the face values of manufacturer coupons by a fixed ratio, the retailer can steal the profits upstream manufacturers earned from price discrimination. Double couponing also eliminates the double price discrimination problem arising out of the non-cooperative coupon strategies between the upstream and downstream firms.;Retail prices often vary more across locations than wholesale prices do. Why? One reason is that retailers arbitrage goods more easily than consumers do. In the third essay I show that a monopolist manufacturer who supplies to multiple retailers would choose wholesale price difference smaller than the transportation cost, so that the retailers do not arbitrage. Taking as given this wholesale pricing strategy of the manufacturer, I examine the classical double marginalization problem in a retail network and its implications for vertical restraints. I establish two main results. First, in a retail network, with linear pricing the final price can be even higher than that in usual double marginalization. Second, even with a two-part tariff the wholesale price can be above marginal cost, and thus double marginalization cannot be totally eliminated. An implication of the findings is that in a retail network, we expect more complex vertical restraints even for pure double marginalization problem.