As we can see from this table the retailer orders the same amount of 100 units in both strategies. In the first situation the order quantity is smaller than the 150 demand. With the wholesale discount the manufacturer sells 100 units to the retailer at $250 per unit (the normal price would be $300, so there is a $50 discount). The profit for the manufacturer will be $250 x 100 = $25,000. With the mail in rebate the manufacturer will sell 100 units to the retailer at $300 per unit. Then he will have to pay all the rebates because all the 100 units were sold. Even if this strategy increases the demand, it does not matter because the order quantity is always 100. The final profit for the manufacturer will be ($300 – $50) x 100 = $25,000. As we can see the profit for the manufacturer will be equal for both strategies if the demand is higher than the order quantity.
Initial Demand Order Quantity Manufacturer selling price Retailer Price to consumer Final demand Manufacturer profit
Discount 150 100 $250 $325 $ 325 $ 150 $25,000
Mail-in-Rebate 150 100 $300 $325 $ -50 $ 275 $ 175 $25,000
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