Welfare-Enhancing Collusion and Coupons

This note applies a variant of Deltas, Salvo and Vasconcelos (2009) to a spatial setting in which retailers compete by issuing coupons. Coupons induce an excessive number of shoppers to travel to stores that are located at a distance from their residence, leading to an inefficient outcome. Were the retailers to collude, or merge to monopoly, couponing would be reduced, total welfare would increase and, for a sufficiently high travel cost, even consumers (in aggregate) would benefit.