<p>Nowadays, retailers often use discounts to promote and monetize their digital goods. Nonetheless, little research attention has been paid to the way discount strategies are designed in a competitive market. To fill this gap, we investigate well-known competitor’s price effect on retailers’ optimal discount decisions (in both discount size and duration). Inspired by our observation, we developed an analytical model including a less-known retailer and a well-known retailer with the less-known retailer offering a discount. Our analytical results show that retailer’s discount size increases with the intensity of price competition. Furthermore, different from prior findings, the less-known retailer prefers pairing a larger (smaller) discount size with a longer (shorter) discount duration under competition. In addition, our findings reflect that offering a longer promotion helps offset dominant competitor’s advantage. Using a unique dataset of audiobooks, we empirically test the derived hypotheses. Most of our predictions are consistent with empirical results. Our study provides retailers with useful managerial insights of discount promotion.</p>