Coupons and oligopolistic price discrimination

This paper studies sales promotion through coupons in a duopolistic market. Sending out coupons allows the sellers to separate market segments with different degrees of consumer brand loyalty. This kind of price discrimination is profitable for the individual seller when the cost of couponing is sufficiently low. In equilibrium, however, couponing increases competition and reduces profits. An increase in the cost of couponing decreases consumer surplus while the impact on profits and social surplus is ambiguous.