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A Note on Coupons

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Here are a few interesting facts [2] about coupons:

Last year, manufacturers placed 342 billion coupons in circulation. Of those, 3.2 billion (roughly one for every hundred printed) were redeemed with a total face value of more than $2.9 billion. That might sound like a lot, but it was actually less than what was redeemed the previous year. In fact, redemptions have been on at least a five-year slide. The reason? There are competing theories, from the rise of discounters such as Wal-Mart to the increasingly hurried lives of shoppers.

I suspect that both hypotheses have merit.  The rise of discounters such as Wal-Mart and Target and the increasingly intense competition among producers of consumer staples make the demands facing each manufacturer and each retailer more elastic.  Being more elastic, there’s less consumer surplus available to be captured as producer surplus by any one seller through price discrimination. Because coupons are likely a method of price discrimination, perhaps the payoff from issuing coupons falls as competition grows more intense.

This trend will be strengthened as people’s time becomes more and more valuable – that is, as the opportunity costs of their time rise. As the value to Ms. Jones of working out of the home rise – or as the value to her of spending quality time with her family rises – she’ll be less inclined to spend time clipping and keeping track of coupons.

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