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Search Deterrence

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Author Info

  • Armstrong, Mark
  • Zhou, Jidong

Abstract

A seller wishes to prevent the discovery of rival offers by its prospective customers. We study sales techniques which serve this purpose by making it harder for a customer to return to buy later after a search for alternatives. These include making an exploding offer, offering a "buy-now" discount, or requiring payment of a deposit in order to buy later. It is unilaterally profitable for a seller to deter search under mild conditions, but sellers can suffer when all do so. In a monopoly setting where the buyer has an uncertain outside option, the optimal selling mechanism features both buy-now discounts and deposit contracts. When a seller cannot commit to its policy, it exploits the inference that those consumers who try to buy later have no good alternative. In many cases the outcome then involves exploding offers, so that no consumers return to buy after search.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48568.

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Date of creation: Jun 2013
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Handle: RePEc:pra:mprapa:48568

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Keywords: Consumer search; sales techniques; price discrimination; sequential screening;

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References

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  1. Pascal Courty & Li Hao, 1997. "Sequential screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Patrick DeGraba, 1995. "Buying Frenzies and Seller-Induced Excess Demand," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 331-342, Summer.
  3. Roger B. Myerson, 1984. "Multistage Games with Communication," Discussion Papers 590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, 09.
  5. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
  6. Armstrong, Mark & Chen, Yongmin, 2012. "Discount pricing," MPRA Paper 39074, University Library of Munich, Germany.
  7. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August.
  8. Daniel Kr�mer & Roland Strausz, 2009. "Optimal Procurement Contracts with Pre--Project Planning," Papers 036, Departmental Working Papers.
  9. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  10. Babur de los Santos, 2008. "Consumer Search on the Internet," Working Papers 2008-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  11. Maarten C.W. Janssen & Alexei Parakhonyak, 2011. "Consumer Search Markets with Costly Second Visits," Vienna Economics Papers 1102, University of Vienna, Department of Economics.
  12. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
  13. Karni, Edi & Schwartz, Aba, 1977. "Search theory: The case of search with uncertain recall," Journal of Economic Theory, Elsevier, vol. 16(1), pages 38-52, October.
  14. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. About exploding offers
    by Economic Logician in Economic Logic on 2013-09-23 14:40:00
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Cited by:
  1. Laura Doval, 2013. "Whether or not to open Pandora's box," Discussion Papers 1574, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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