Time-Inconsistent Preferences Vs. Price Discrimination: How Do Firms Increase Profits Via Mail-In Rebate Promotions?

Beomjoon Choi, California State University, Sacramento, USA
Joseph Kissan, University of Kansas, USA
James Lemieux, University of Kansas, USA
It is widely believed that mail-in rebates are used by marketers to improve profits at the expense of consumers who fail to redeem them. An alternative view is that rebates act as a price discrimination tool which segments the market according to consumer price sensitivity (Narasimhan 1984). In light of these two explanations for breakage, it is unclear which mechanism actually takes place in generating profits via mail-in rebate program. This finding suggest that the ability of marketers to capitalize on time-inconsistent preferences is limited and the greatest potential for profit gains lies in optimizing the price discrimination mechanism.
[ to cite ]:
Beomjoon Choi, Joseph Kissan, and James Lemieux (2010) ,"Time-Inconsistent Preferences Vs. Price Discrimination: How Do Firms Increase Profits Via Mail-In Rebate Promotions?", in NA - Advances in Consumer Research Volume 37, eds. Margaret C. Campbell, Jeff Inman, and Rik Pieters, Duluth, MN : Association for Consumer Research, Pages: 504-505 .