AbstractWe investigate the marketing practice of framing a price as a discount from an earlier price. We discuss two reasons why a discounted price---rather than a merely low price---can make a consumer more willing to purchase. First, a high initial price can indicate the product is high quality. Second, a high initial price can signal a bargain relative to other options, and there is less incentive to search. We also discuss a behavioral model where the propensity to buy increases when others pay more. A seller has an incentive to offer false discounts, where the initial price is exaggerated.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9327.
Date of creation: Feb 2013
Date of revision:
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Other versions of this item:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-COM-2013-04-13 (Industrial Competition)
- NEP-CTA-2013-04-13 (Contract Theory & Applications)
- NEP-MIC-2013-04-13 (Microeconomics)
- NEP-MKT-2013-04-13 (Marketing)
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