Conditioning prices on search behaviour
AbstractWe 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 19985.
Date of creation: Jan 2010
Date of revision:
Consumer search; oligopoly; price discrimination; high-pressure selling; exploding offers; costly recall;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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- Mark Armstrong & Jidong Zhou, 2010.
"Exploding Offers and Buy-Now Discounts,"
EERI Research Paper Series
EERI_RP_2010_44, Economics and Econometrics Research Institute (EERI), Brussels.
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- Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 22531, University Library of Munich, Germany.
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