Commitment and cheap talk in search deterrence

Siqi Pan and Xin Zhao

RAND Journal of Economics, 2023, vol. 54, issue 2, 325-359

Abstract: We investigate the role of sellers' commitment power in discouraging consumer search. Theoretically, lack of commitment power transforms sellers' search‐deterring claims into cheap talk, eliminating sellers' ability to deter search in some market environments. However, our experiments show buyers' search decisions are significantly affected by sellers' cheap talk. When future prices are not adjustable, sellers falsely claim exploding offers to deter search. When future prices are adjustable, sellers falsely claim low future prices to lure consumers to return after search and exploit these “captive” consumers with subsequent price hikes. A behavioral model with naïve buyers explains our experimental findings.

Date: 2023
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https://doi.org/10.1111/1756-2171.12439

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