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Search Deterrence

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  • Mark Armstrong
  • Jidong Zhou

Abstract

A seller wishes to prevent the discovery of rival offers by its prospective customers. We study sales techniques which serve this purpose by making it harder for a customer to return to buy later after a search for alternatives. These include making an exploding offer, offering a "buy-now" discount, or requiring payment of a deposit in order to buy later. It is unilaterally profitable for a seller to deter search under mild conditions, but sellers can suffer when all do so. In a monopoly setting where the buyer has an uncertain outside option, the optimal selling mechanism features both buy-now discounts and deposit contracts. When a seller cannot commit to its policy, it exploits the inference that those consumers who try to buy later have no good alternative. In many cases the outcome then involves exploding offers, so that no consumers return to buy after search.

Suggested Citation

  • Mark Armstrong & Jidong Zhou, 2013. "Search Deterrence," Economics Series Working Papers 661, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:661
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    File URL: http://www.economics.ox.ac.uk/materials/papers/12772/paper661.pdf
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. About exploding offers
      by Economic Logician in Economic Logic on 2013-09-23 19:40:00

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    Cited by:

    1. Mark Armstrong, 2017. "Ordered Consumer Search," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 989-1024.
    2. Gautier, Pieter A. & Hu, Bo & Watanabe, Makoto, 2016. "Marketmaking Middlemen," IZA Discussion Papers 10152, Institute for the Study of Labor (IZA).
    3. Deb, Rahul & Said, Maher, 2015. "Dynamic screening with limited commitment," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 891-928.
    4. Andrew Rhodes & Chris M. Wilson, 2018. "False advertising," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 348-369, June.
    5. repec:eee:jetheo:v:175:y:2018:i:c:p:127-158 is not listed on IDEAS
    6. Asker, John & Bar-Isaac, Heski, 2016. "Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions," CEPR Discussion Papers 11579, C.E.P.R. Discussion Papers.
    7. Doval, Laura, 2018. "Whether or not to open Pandora's box," Journal of Economic Theory, Elsevier, vol. 175(C), pages 127-158.

    More about this item

    Keywords

    Consumer search; sales techniques; price discrimination; sequential search;

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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