Prize Promotions for Solving Firms’ Time Inconsistency

Chapter
Part of the SpringerBriefs in Economics book series (BRIEFSECONOMICS)

Abstract

Prize promotions have become extremely common in recent times. One such example is the “USD 100 present for 100 buyers” campaign. Prize promotions are known as firms’ strategy to attract consumers and increase sales. This chapter sheds light on new aspect of prize promotions. I shows that prize promotions solve various time-inconsistency problems between firms and consumers; Consumers sometimes care about the number of users or popularization of the products in the future (e.g., video game devices). Consumers sometimes care about the increase in price of products they regularly purchase. In these cases, time inconsistency can occur: the firm would like to announce the future popularization of the products. However, the announcement of future popularization is not credible to the consumers. Then, current consumers do not purchase the goods. By employing prize promotions, the firm can credibly commit to future expansion of production. I also show when prize promotions are profitable.

Keywords

Prize promotions Advertisements Time inconsistency 

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Copyright information

© Development Bank of Japan 2018

Authors and Affiliations

  1. 1.Nagoya University of Commerce & BusinessNisshin-shiJapan

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