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Can Bait and Switch Benefit Consumers?

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Author Info

  • Eitan Gerstner

    (North Carolina State University)

  • James D. Hess

    (North Carolina State University)

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    Abstract

    We present a model that leads to an equilibrium with characteristics similar to the following stylized facts observed in retail markets: (a) Retailers advertise only selected brands; (b) Often low priced advertised brands are understocked; (c) In-store promotions are biased towards more expensive substitute brands. Together these practices constitute illegal bait and switch. Is this phenomenon necessarily harmful to consumers and to the economy? We show that bait and switch can benefit consumers because utility is created through in-store promotions and price competition is enhanced. This suggests that the FTC investigate further its ban on bait and switch.

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    File URL: http://dx.doi.org/10.1287/mksc.9.2.114
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 9 (1990)
    Issue (Month): 2 ()
    Pages: 114-124

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    Handle: RePEc:inm:ormksc:v:9:y:1990:i:2:p:114-124

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    Related research

    Keywords: pricing; promotion; regulation; bait and switch;

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    Cited by:
    1. Mark Bergen & Daniel Levy & Sourav Ray & Paul Rubin & Benjamin Zeliger, 2004. "When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws," Law and Economics 0405005, EconWPA, revised 02 Jun 2005.
    2. Rosato, Antonio, 2013. "Selling Substitute Goods to Loss-Averse Consumers: Limited Availability, Bargains and Rip-offs," MPRA Paper 47168, University Library of Munich, Germany.
    3. Luís Cabral, 2012. "Lock in and switch: Asymmetric information and new product diffusion," Quantitative Marketing and Economics, Springer, vol. 10(3), pages 375-392, September.

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