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Are Consumers Fooled by Discounts? An Experimental Test in a Consumer Search Environment

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  • RALPH‐C. BAYER
  • CHANGXIA KE

Abstract

In this paper we investigate experimentally if people search optimally and how price promotions influence search behavior. We implement a sequential search task with exogenous price dispersion in a baseline treatment and introduce discounts in two experimental treatments. We find that search behavior is roughly consistent with optimal search but also observe some discount biases. If subjects don't know in advance where discounts are offered the purchase probability is increased by 19 percentage points in shops with discounts, even after controlling for the benefit of the discount and for risk preferences. If consumers know in advance where discounts are given then the bias is only weakly significant and much smaller (7 percentage points).

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File URL: http://hdl.handle.net/10.1111/j.1475-4932.2011.00724.x
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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 87 (2011)
Issue (Month): 279 (December)
Pages: 575-586

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Handle: RePEc:bla:ecorec:v:87:y:2011:i:279:p:575-586

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Cited by:
  1. Ralph-C Bayer & Changxia Ke, 2011. "Discounts and Consumer Search Behavior: The Role of Framing," Working Papers discounts_and_consumer_se, Max Planck Institute for Tax Law and Public Finance.

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