Advanced Search
MyIDEAS: Login to save this paper or follow this series

Discount Pricing

Contents:

Author Info

  • Mark Armstrong
  • Yongmin Chen

Abstract

This paper investigates discount pricing, the common marketing practice whereby a price is listed as a discount from an earlier, or regular, price.� We discuss two reasons why a discounted price - as opposed to a mearly low price - can make a rational consumer more willing to purchase the item.� First, the information that the product was initially sold at a high price can indicate the product is high quality.� Second, a discounted price can signal that the product is an unusual bargain, and there is little point searching for lower prices.� We also discuss a behavioral model in which consumers have an intrinsic preference for paying a below-average price.� Here, a seller has an incentive to offer different prices to identical consumers, so that a proportion of its consumers enjoy a bargain.� We discuss in each framework when a seller has an incentive to offer false discounts, in which the reference price is exaggerated.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.ox.ac.uk/materials/papers/5819/paper605.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 605.

as in new window
Length:
Date of creation: 01 May 2012
Date of revision:
Handle: RePEc:oxf:wpaper:605

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC

Related research

Keywords: Reference dependence; Price discounts; Sales tactics; False advertising;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, American Finance Association, vol. 69(2), pages 819-866, 04.
  2. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," Working Papers 463, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  4. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Urbany, Joel E & Bearden, William O & Weilbaker, Dan C, 1988. " The Effect of Plausible and Exaggerated Reference Prices on Consumer Perceptions and Price Search," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 15(1), pages 95-110, June.
  6. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, INFORMS, vol. 27(1), pages 15-25, 01-02.
  7. Zhou, Jidong, 2008. "Reference Dependence and Market Competition," MPRA Paper 9370, University Library of Munich, Germany.
  8. Edward P. Lazear, 1984. "Retail Pricing and Clearance Sales," NBER Working Papers 1446, National Bureau of Economic Research, Inc.
  9. Paul Rubin, 2008. "Regulation of Information and Advertising," CPI Journal, Competition Policy International, Competition Policy International, vol. 4.
  10. C. Puppe & S. Rosenkranz, 2006. "Why suggest non-binding retail prices ?," Working Papers, Utrecht School of Economics 06-10, Utrecht School of Economics.
  11. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4849, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mark Armstrong & Jidong Zhou, 2013. "Search Deterrence," Economics Series Working Papers 661, University of Oxford, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:605. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.