Analysis of Customer Rebates and
Retailer Incentives
in the Automotive
Market
Ozgun Caliskan Demirag (presenting), Pinar Keskinocak, Julie Swann
Georgia Tech
Manufacturers using
non-direct distribution channels to sell their products can control sales by
using customer rebates and/or incentives given directly to the retailers. We
focus on industries, such as automotive, where retailers may price
discriminate. We examine the impact of retailer incentives and customer rebates
on the manufacturer's pricing and the retailer's ordering decisions and determine
which promotion would benefit the manufacturer under which market conditions. We consider several models with different
demand characteristics. We find that when demand is deterministic, the manufacturer
may improve her profits and sales with a retailer incentive but not with a
customer rebate unless it leads to increased market potential. We also find
that when the uncertainty in market potential is maximum,
customer rebate is more profitable than the retailer incentive. We perform some
data analysis to understand relationships between rebates and sales in the
existing domestic auto industry.