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.
|Date of creation:||27 Jun 2013|
|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.:
- Glenn Ellison & Alexander Wolitzky, 2012.
"A search cost model of obfuscation,"
RAND Journal of Economics,
RAND Corporation, vol. 43(3), pages 417-441, 09.
- Babur De los Santos, 2008.
"Consumer Search on the Internet,"
08-15, NET Institute, revised Sep 2008.
- Zhou, Jidong, 2009. "Prominence and Consumer Search: The Case With Multiple Prominent Firms," MPRA Paper 12554, University Library of Munich, Germany.
- Maarten C.W. Janssen & Alexei Parakhonyak, 2011. "Consumer Search Markets with Costly Second Visits," Vienna Economics Papers 1102, University of Vienna, Department of Economics.
- Armstrong, Mark & Chen, Yongmin, 2012.
39074, University Library of Munich, Germany.
- Daniel Krähmer & Roland Strausz, 2011.
"Optimal Procurement Contracts with Pre-Project Planning,"
Review of Economic Studies,
Oxford University Press, vol. 78(3), pages 1015-1041.
- Daniel Krämer & Roland Strausz, 2009. "Optimal Procurement Contracts with Pre--Project Planning," Papers 036, Departmental Working Papers.
- Karni, Edi & Schwartz, Aba, 1977. "Search theory: The case of search with uncertain recall," Journal of Economic Theory, Elsevier, vol. 16(1), pages 38-52, October.
- Roger B. Myerson, 1984.
"Multistage Games with Communication,"
590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
- Mark Armstrong & John Vickers & Jidong Zhou, 2008.
"Prominence and Consumer Search,"
Economics Series Working Papers
379, University of Oxford, Department of Economics.
- Nocke, Volker & Peitz, Martin & Rosar, Frank, 2011.
"Advance-purchase discounts as a price discrimination device,"
Journal of Economic Theory,
Elsevier, vol. 146(1), pages 141-162, January.
- Nocke, Volker & Peitz, Martin, 2008. "Advance-Purchase Discounts as a Price Discrimination Device," CEPR Discussion Papers 6664, C.E.P.R. Discussion Papers.
- Patrick DeGraba, 1995. "Buying Frenzies and Seller-Induced Excess Demand," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 331-342, Summer.
- 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.
- Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
- Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2014. "Dynamic Mechanism Design: A Myersonian Approach," Econometrica, Econometric Society, vol. 82(2), pages 601-653, 03.
- Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
- Pascal Courty & Li Hao, 2000.
Review of Economic Studies,
Oxford University Press, vol. 67(4), pages 697-717.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 493-511.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 80(5), pages 1254-58, December.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:661. 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.