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Discount Pricing

Mark Armstrong and Yongmin Chen

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the marketing practice of framing a price as a discount from an earlier price. We discuss two reasons why a discounted price---rather than a merely low price---can make a rational consumer more willing to purchase. First, a high initial price can indicate the seller has chosen to supply a high-quality product. Second, a seller with limited stock runs a clearance sale, later consumers infer that an unsold product may be poor quality, but if the initial price was higher they do not downgrade their evaluation of quality as much. In either case, if able to do so a seller has an incentive to engage in fictitious pricing, where the reported initial price is exaggerated.

Keywords: Reference dependence; sales tactics; false advertising; fictitious pricing; consumer protection (search for similar items in EconPapers)
JEL-codes: D42 D83 L15 M31 M37 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-upt
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https://mpra.ub.uni-muenchen.de/76681/1/MPRA_paper_76681.pdf original version (application/pdf)

Related works:
Journal Article: DISCOUNT PRICING (2020) Downloads
Working Paper: Discount Pricing (2013) Downloads
Working Paper: Discount Pricing (2012) Downloads
Working Paper: Discount pricing (2012) Downloads
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