A Market Experiment on Trade Promotion Budget and Allocation

It is the Policy of Cornell University actively to support equality of educational and employment opportunity. No person shall be denied admission to any educational program or activity or be denied employment on the basis of any legally prohibited discrimination committed to the maintenance of affirmative action programs which will assure the continuation of such equality of opportunity. Abstract We design a market experiment to examine how firm size and ability to choose trade promotion types influence trade promotion budget, its allocation and channel profits. Our experimental results show that larger manufacturers offer smaller trade promotion budgets. Manufacturers with ability to influence the allocation decision favor scan-backs while retailers favor off-invoices. Trade promotion decisions affect profit sharing within the channel but not total channel profit. We validate these findings with an econometric analysis of survey data from supermarket executives. Overall, our results suggest that market experiments can shed light on trade promotion outcomes for which industry data are sparse.