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Add‐On Pricing Over Regional Business Cycles: Evidence From Extended Warranties

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  • Branko Bošković
  • Sacha Kapoor
  • Agnieszka Markiewicz
  • Barry Scholnick

Abstract

Add ons are features or services that can enhance the functionality or quality of base goods. They are pervasive. Yet we know little about the behavior of add‐on prices over the business cycle. We use 10 years of data from a nationwide Canadian retailer to investigate the local cyclicality of extended warranty prices, a classic add on. We find base prices are acyclical. Warranty prices are procyclical because local stores use warranties to make demand for durable goods less price‐elastic. We show add ons amplify responses to national business cycles and study the implications for inflation rate bias.

Suggested Citation

  • Branko Bošković & Sacha Kapoor & Agnieszka Markiewicz & Barry Scholnick, 2024. "Add‐On Pricing Over Regional Business Cycles: Evidence From Extended Warranties," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(4), pages 2019-2046, November.
    • Handle: RePEc:wly:iecrev:v:65:y:2024:i:4:p:2019-2046
    DOI: 10.1111/iere.12710
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