Sequential Search with a Price Freeze Option: Theory and Experimental Evidence

Emanuel Marcu and Charles Noussair

No 2019-03, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University

Abstract: We study the economics of price freeze options (PFOs), by introducing them into a model of sequential search. The model makes a number of predictions, which we test in a laboratory experiment. The experiment varies (1) whether freezing is possible or not, (2) the cost of freezing, and (3) the length of the time horizon. We find that the observed treatment effects are consistent with the predictions of our model, though on average searches are terminated earlier than predicted. Interestingly, the extent of under-searching is magnified by the presence of an affordable PFO. We also show that while under-searching is relatively harmless at the individual level, it can lead to welfare losses in the long run.

Keywords: Sequential Search; Price Freezing; Experiment; Under-searching; Imperfect Recall (search for similar items in EconPapers)
JEL-codes: C91 D83 (search for similar items in EconPapers)
Pages: 69
Date: 2019-01
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http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2019-03.pdf (application/pdf)

Related works:
Journal Article: Sequential search with a price freeze option: theory and experimental evidence (2024)
Working Paper: Sequential Search with a Price Freeze Option - Theory and Experimental Evidence (2018)
Working Paper: Sequential Search with a Price Freeze Option - Theory and Experimental Evidence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:exc:wpaper:2019-03

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