Consumer Search, Price Promotions, and Counter-Cyclic Pricing

Avery Haviv ()
Additional contact information
Avery Haviv: Simon Business School, University of Rochester, Rochester, New York 14620

Marketing Science, 2022, vol. 41, issue 2, 294-314

Abstract: Previous studies have found that increases in price promotions lead decreases in the average price of seasonal goods in high-demand seasons, countering basic supply and demand predictions. I explain this phenomenon by proposing that price-sensitive consumers are less likely to search in low-demand periods, changing consumer composition and decreasing aggregate price elasticity. Simultaneously, consumer searches allow the firm to use price promotions to attract price-sensitive consumers while maintaining high average prices. I test this and other explanations using a seasonal dynamic structural inventory model where consumers make decisions on whether to search, which reveals price promotions and allows consumers to purchase. I find that price-sensitive consumers make up 14.9% of searching consumers in the low-demand season versus 29% in the high-demand season, resulting in increased price elasticity. The results suggest that consumer composition is changing due to the different search incentives of different segments.

Keywords: counter-cyclic pricing; dynamic structural model; inventory; theoretical model; consumer search; mixed strategy; monopolist; price promotions (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.2021.1327 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:41:y:2022:i:2:p:294-314

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().