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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 New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 11-18.

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Date of creation: 2011
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Handle: RePEc:ste:nystbu:11-18
Contact details of provider: Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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  6. Mark Armstrong & Jidong Zhou, 2011. "Exploding Offers and Buy-Now Discounts," Working Papers 11-18, New York University, Leonard N. Stern School of Business, Department of Economics.
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  18. 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.
  19. Muriel Niederle & Alvin E. Roth, 2004. "Market Culture: How Norms Governing Exploding Offers Affect Market Performance," Levine's Bibliography 122247000000000018, UCLA Department of Economics.
  20. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
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