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A Model of Add-on Pricing

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  • Glenn Ellison

Abstract

This paper examines a competitive model of add-on pricing, the practice of advertising low prices for one good in hopes of selling additional products (or a higher quality product) to consumers at a high price at the point of sale. The main conclusion is that add-on pricing softens price competition between firms and results in higher equilibrium profits.

Suggested Citation

  • Glenn Ellison, 2003. "A Model of Add-on Pricing," NBER Working Papers 9721, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9721
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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