This paper investigates discount pricing, the common marketing practice whereby a price is listed as a discount from an earlier, or regular, price. We discuss two reasons why a discounted price - as opposed to a mearly low price - can make a rational consumer more willing to purchase the item. First, the information that the product was initially sold at a high price can indicate the product is high quality. Second, a discounted price can signal that the product is an unusual bargain, and there is little point searching for lower prices. We also discuss a behavioral model in which consumers have an intrinsic preference for paying a below-average price.Here, a seller has an incentive to offer different prices to identical consumers, so that a proportion of its consumers enjoy a bargain. We discuss in each framework when a seller has an incentive to offer false discounts, in which the reference price is exaggerated.
|Date of creation:||01 May 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Manor Rd. Building, Oxford, OX1 3UQ|
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Heidhues & Botond Köszegi, 2004.
"The Impact of Consumer Loss Aversion on Pricing,"
CIG Working Papers
SP II 2004-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Zhou, Jidong, 2008.
"Reference Dependence and Market Competition,"
9370, University Library of Munich, Germany.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2010.
"Salience and consumer choice,"
Economics Working Papers
1252, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2012.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," Working Papers 463, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Pedro Bordado & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," Working Papers 501, Barcelona Graduate School of Economics.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, . "Salience and Consumer Choice," Working Paper 62321, Harvard University OpenScholar.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," NBER Working Papers 17947, National Bureau of Economic Research, Inc.
- Richard Thaler, 1985.
"Mental Accounting and Consumer Choice,"
INFORMS, vol. 4(3), pages 199-214.
- Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2009.
"Sovereign default, domestic banks and financial institutions,"
Economics Working Papers
1170, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2012.
- Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, vol. 69(2), pages 819-866, 04.
- Gennaioli, Nicola & Martin, Alberto & Rossi, Stefano, 2010. "Sovereign Default, Domestic Banks and Financial Institutions," CEPR Discussion Papers 7955, C.E.P.R. Discussion Papers.
- Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2012. "Sovereign Default, Domestic Banks, and Financial Institutions," Working Papers 462, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Nicola Gennaioli & Alberto Martín & Stefano Rossi, 2012. "Sovereign Default, Domestic Banks and Financial Institutions," Working Papers 622, Barcelona Graduate School of Economics.
- repec:oup:restud:v:66:y:1999:i:3:p:555-78 is not listed on IDEAS
- Huanxing Yang & Lixin Ye, 2008. "Search with learning: understanding asymmetric price adjustments," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 547-564.
- Curtis R. Taylor, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 555-578.
- Clemens Puppe & Stephanie Rosenkranz, 2011.
"Why Suggest Non‐Binding Retail Prices?,"
London School of Economics and Political Science, vol. 78(310), pages 317-329, 04.
- Lazear, Edward P, 1986.
"Retail Pricing and Clearance Sales,"
American Economic Review,
American Economic Association, vol. 76(1), pages 14-32, March.
- Kyle Bagwell & Michael Riordan, 1988.
"High and Declining Prices Signal Product Quality,"
808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Spiegler, Ran, 2014.
"Bounded Rationality and Industrial Organization,"
Oxford University Press, number 9780199334261, July.
- Urbany, Joel E & Bearden, William O & Weilbaker, Dan C, 1988. " The Effect of Plausible and Exaggerated Reference Prices on Consumer Perceptions and Price Search," Journal of Consumer Research, Oxford University Press, vol. 15(1), pages 95-110, June.
- Paul H. Rubin, 2012.
"Regulation of Information and Advertising,"
in: Regulation and Economics, chapter 3
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:605. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Monica Birds)
If references are entirely missing, you can add them using this form.