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Conditioning prices on search behaviour

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Author Info

  • Armstrong, Mark
  • Zhou, Jidong

Abstract

We consider a market in which firms can partially observe each consumer's search behavior in the market. In our main model, a firm knows whether a consumer is visiting it for the first time or whether she is returning after a previous visit. Firms have an incentive to offer a lower price on a first visit than a return visit, so that new consumers are offered a "buy-now" discount. The ability to offer such discounts acts to raise all prices in the market. If firms cannot commit to their buy-later price, in many cases firms make "exploding" offers, and consumers never return to a previously sampled firm. Likewise, if firms must charge the same price to all consumers, regardless of search history, we show that they sometimes have the incentive to make exploding offers. We also consider other ways in which firms could use information about search behaviour to determine their prices.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19985.

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Date of creation: Jan 2010
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Handle: RePEc:pra:mprapa:19985

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Related research

Keywords: Consumer search; oligopoly; price discrimination; high-pressure selling; exploding offers; costly recall;

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Cited by:
  1. S. Nuray Akin & Brennan Platt, 2012. "A theory of search with deadlines and uncertain recall," Working Papers, University of Miami, Department of Economics 2012-3, University of Miami, Department of Economics.
  2. Huck, Steffen & Schmid, Julia & Wallace, Brian, 2013. "Price framing," Discussion Papers, Research Unit: Economics of Change, Social Science Research Center Berlin (WZB) SP II 2013-314, Social Science Research Center Berlin (WZB).
  3. Brennan Platt & Nuray Akin, 2012. "A theory of search with recall and uncertain deadlines," 2012 Meeting Papers, Society for Economic Dynamics 777, Society for Economic Dynamics.
  4. Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 22531, University Library of Munich, Germany.
  5. Maarten C.W. Janssen & Alexei Parakhonyak, 2011. "Consumer Search Markets with Costly Second Visits," Vienna Economics Papers, University of Vienna, Department of Economics 1102, University of Vienna, Department of Economics.

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