Are Consumers Fooled by Discounts? An Experimental Test in a Consumer Search Environment
AbstractIn 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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Bibliographic InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2010-22.
Length: 29 pages
Date of creation: 2010
Date of revision:
Consumer Search Theory; Search Cost; Price Promotion;
Other versions of this item:
- Ralph‐C. Bayer & Changxia Ke, 2011. "Are Consumers Fooled by Discounts? An Experimental Test in a Consumer Search Environment," The Economic Record, The Economic Society of Australia, vol. 87(279), pages 575-586, December.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-16 (All new papers)
- NEP-EXP-2010-10-16 (Experimental Economics)
- NEP-MKT-2010-10-16 (Marketing)
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