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Exploding offers and buy-now discounts

Author

Listed:
  • Armstrong, Mark
  • Zhou, Jidong
Abstract
We consider a market with sequential consumer search in which firms can distinguish potential customers visiting for the first time from returning visitors. We show that firms often have an incentive to make it costly for its visitors to return after investigating rivals, 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 by first-time visitors lower than that for returning visitors). Prices often increase when return costs are artificially increased in this manner, and this harms consumers and market performance. If firms cannot commit to their buy-later price the outcome depends on whether there is an intrinsic cost of returning to a firm: if the intrinsic return cost is zero, it is often an equilibrium for firms not to offer any buy-now discount; if the return cost is positive, firms are forced to make exploding offers.

Suggested Citation

  • Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 22531, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:22531
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Mark Armstrong & Jidong Zhou, 2016. "Search Deterrence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 26-57.
    2. Jason Allen & Robert Clark & Jean-François Houde, 2019. "Search Frictions and Market Power in Negotiated-Price Markets," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1550-1598.
    3. Philippe Choné & Romain De Nijs & Lionel Wilner, 2012. "Intertemporal Pricing with Unobserved Consumer Arrival Times," Working Papers 2012-23, Center for Research in Economics and Statistics.
    4. Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 22531, University Library of Munich, Germany.
    5. Fernando Branco & Monic Sun & J. Miguel Villas-Boas, 2012. "Optimal Search for Product Information," Management Science, INFORMS, vol. 58(11), pages 2037-2056, November.
    6. Sugden, Robert & Wang, Mengjie & Zizzo, Daniel John, 2019. "Take it or leave it: Experimental evidence on the effect of time-limited offers on consumer behaviour," Journal of Economic Behavior & Organization, Elsevier, vol. 168(C), pages 1-23.
    7. 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.
    8. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.
    9. Hui Xiong & Ying-Ju Chen, 2014. "Product Line Design with Seller-Induced Learning," Management Science, INFORMS, vol. 60(3), pages 784-795, March.

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    More about this item

    Keywords

    Consumer search; oligopoly; price discrimination; high-pressure selling; buy-now discounts; costly recall;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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