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Exploding Offers and Buy-Now Discounts

  • Mark Armstrong
  • Jidong Zhou

A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly, before she can investigate rival deals in the market.� We consider a market with sequential consumer search in which firms can achieve this 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).� We show that firms often have an incentive to use these sales techniques, regardless of their ability to commit to their selling policy.� We examine the impact of these sales techniques on market performance.� Inducing consumers to buy quickly not only reduces the quality of the match between consumers and products, but may also raise market prices.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 575.

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Date of creation: 01 Oct 2011
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Handle: RePEc:oxf:wpaper:575
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