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Exploding offers and buy-now discounts

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  • Armstrong, Mark
  • Zhou, Jidong

Abstract

A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly. We consider a market with sequential consumer search in which firms often encourage first-time visitors to buy immediately, either by making an "exploding offer" (which permits no return once the consumer leaves) or by offering a "buy-now discount" (which makes the price paid for immediate purchase lower than the regular price). Prices often increase when these policies are used. If firms cannot commit to their sales policy, the outcome depends on whether consumer incur an intrinsic cost of returning to a firm: if there is no such return cost, it is often an equilibrium for firms to offer a uniform price to both first-time and returning visitors; if the return cost is positive, however, firms are forced to make exploding offers.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24849.

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Date of creation: Sep 2010
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Handle: RePEc:pra:mprapa:24849

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

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References

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  1. Renault, Régis & Anderson, Simon P., 2009. "Comparative advertising: disclosing horizontal match information," Economics Papers from University Paris Dauphine 123456789/12478, Paris Dauphine University.
  2. Armstrong, Mark & Zhou, Jidong, 2010. "Conditioning prices on search behaviour," MPRA Paper 19985, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer, vol. 55(2), pages 481-514, February.
  2. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.
  3. Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 22531, University Library of Munich, Germany.
  4. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Negotiation in Differentiated Products Markets: Evidence from the Canadian Mortgage Market," Working Papers 12-30, Bank of Canada.
  5. Philippe Choné & Romain De Nijs & Lionel Wilner, 2012. "Intertemporal Pricing with Unobserved Consumer Arrival Times," Working Papers 2012-23, Centre de Recherche en Economie et Statistique.

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