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Are Consumers Fooled by Discounts? An Experimental Test in a Consumer Search Environment

Author

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  • Ralph-C Bayer

    () (School of Economics, University of Adelaide)

  • Changxia Ke

    (Max Planck Institute)

Abstract

In this paper we investigate experimentally if people search optimally and how price promotions influence search behavior. We implement a sequential search task with exogenous price dispersion in a baseline treatment and introduce discounts in two experimental treatments. We find that search behavior is roughly consistent with optimal search but also observe some discount biases. If subjects don't know in advance where discounts are offered the purchase probability is increased by 19 percentage points in shops with discounts, even after controlling for the benefit of the discount and for risk preferences. If consumers know in advance where discounts are given then the bias is only weakly significant and much smaller (7 percentage points).

Suggested Citation

  • Ralph-C Bayer & Changxia Ke, 2010. "Are Consumers Fooled by Discounts? An Experimental Test in a Consumer Search Environment," School of Economics Working Papers 2010-22, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2010-22
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    File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2010-22.pdf
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    Cited by:

    1. Bayer, Ralph-C. & Ke, Changxia, 2013. "Discounts and consumer search behavior: The role of framing," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 215-224.

    More about this item

    Keywords

    Consumer Search Theory; Search Cost; Price Promotion;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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