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Exploding Offers and Buy-Now Discounts

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  • Mark Armstrong
  • Jidong Zhou

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.

Suggested Citation

  • Mark Armstrong & Jidong Zhou, 2010. "Exploding Offers and Buy-Now Discounts," EERI Research Paper Series EERI_RP_2010_44, Economics and Econometrics Research Institute (EERI), Brussels.
  • Handle: RePEc:eei:rpaper:eeri_rp_2010_44
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    References listed on IDEAS

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    Cited by:

    1. Philippe Choné & Romain De Nijs & Lionel Wilner, 2012. "Intertemporal Pricing with Unobserved Consumer Arrival Times," Working Papers 2012-23, Center for Research in Economics and Statistics.
    2. Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 22531, University Library of Munich, Germany.
    3. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 481-514, February.
    4. Fernando Branco & Monic Sun & J. Miguel Villas-Boas, 2012. "Optimal Search for Product Information," Management Science, INFORMS, vol. 58(11), pages 2037-2056, November.
    5. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.
    6. Robert Sugden & Mengjie Wang & Daniel John Zizzo, 2015. "Take it or leave it: Experimental evidence on the effect of time-limited offers on consumer behaviour," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-19, School of Economics, University of East Anglia, Norwich, UK..
    7. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Negotiation in Differentiated Products Markets: Evidence from the Canadian Mortgage Market," Staff Working Papers 12-30, Bank of Canada.

    More about this item

    Keywords

    Consumer search; oligopoly; price discrimination; high-pressure selling; exploding offers; buy-now discounts; costly recall.;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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