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Sales, Quantity Surcharge, and Consumer Inattention

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  • Sofronis Clerides
  • Pascal Courty

Abstract

Quantity surcharges occur when firms market a product in two sizes and offer a promotion on the small size: the large size then costs more per unit than the small one. When quantity surcharges occur the sales of the large size decrease only slightly despite the fact that the small size is a cheaper option - a clear arbitrage opportunity. This behavior is consistent with the notion of rationally inattentive consumers that has been developed in models of information frictions. We discuss implications for consumer decision making, demand estimation, and firm pricing.

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/7-10.pdf
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Bibliographic Info

Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 07-2010.

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Length: 31 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:ucy:cypeua:07-2010

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Web page: http://www.econ.ucy.ac.cy

Related research

Keywords: quantity surcharge; sales; promotions; consumer inattention; quantity discounts; nonlinear pricing.;

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  1. Tülin Erdem & Susumu Imai & Michael Keane, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," Quantitative Marketing and Economics, Springer, vol. 1(1), pages 5-64, March.
  2. Berck, Peter & Brown, Jennifer & Perloff, Jeffrey M. & Villas-Boas, Sofia B, 2007. "Sales : tests of theories on causality and timing," CUDARE Working Paper Series 1031, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  3. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2007. "Optimal Sticky Prices under Rational Inattention," CEPR Discussion Papers 6243, C.E.P.R. Discussion Papers.
  4. Bentzen, Jan & Engsted, Tom, 1993. "Short- and long-run elasticities in energy demand : A cointegration approach," Energy Economics, Elsevier, vol. 15(1), pages 9-16, January.
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  7. Mondria, Jordi, 2010. "Portfolio choice, attention allocation, and price comovement," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1837-1864, September.
  8. Michelle Sovinsky Goeree, 2005. "Advertising in the US Personal Computer Industry," Industrial Organization 0503002, EconWPA.
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Cited by:
  1. P. Février & L. Wilner, 2012. "Do Consumers Correctly Expect Price Reductions? Testing Dynamic Behavior," Documents de Travail de la DESE - Working Papers of the DESE g2012-03, Institut National de la Statistique et des Etudes Economiques, DESE.

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