Discount Pricing

Mark Armstrong and Yongmin Chen

No 9327, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 consumer more willing to purchase. First, a high initial price can indicate the product is high quality. Second, a high initial price can signal a bargain relative to other options, and there is less incentive to search. We also discuss a behavioral model where the propensity to buy increases when others pay more. A seller has an incentive to offer false discounts, where the initial price is exaggerated.

Keywords: Consumer protection; Consumer search; False advertising; Price discrimination; Reference dependence (search for similar items in EconPapers)
JEL-codes: D03 D18 D83 M3 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-com, nep-cta, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: DISCOUNT PRICING (2020)
Working Paper: Discount Pricing (2017)
Working Paper: Discount Pricing (2012)
Working Paper: Discount pricing (2012)
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