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An Economic Analysis of Add-on Discounts

✍ Scribed by Takanori Adachi; Takeshi Ebina

Publisher
John Wiley and Sons
Year
2011
Tongue
English
Weight
259 KB
Volume
33
Category
Article
ISSN
0143-6570

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✦ Synopsis

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 (β€˜premium’ consumers); and (ii) those who do not necessarily buy the add‐on (β€˜economy’ consumers). It is shown that the greater the number of β€˜premium’ consumers, the less desirable add‐on discounts are for a seller. Copyright Β© 2011 John Wiley & Sons, Ltd.

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