The Effects of Consumer Rebates in a Competitive Distribution Channel
This research investigates the effectiveness of consumer rebates offered by competing manufacturers in a distribution channel. We consider a two-manufacturer, two-retailer channel and develop a two-period model where consumers’ preferences are distributed along a Hotelling line. The rebate consists in a price discount that can be redeemed on the second period. We solve three Stackelberg games: a benchmark where no rebate is offered, a symmetric game where both manufacturers offer rebates, and an asymmetric game where only one manufacturer provides a rebate. Comparisons of equilibrium solutions show that while manufacturers should not offer rebates, they could do so due to a prisoner dilemma situation when their wholesale prices are high.