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Exploding offers and buy-now discounts

Mark Armstrong and Jidong Zhou ()

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a market with sequential consumer search in which firms can distinguish potential customers visiting for the first time from returning visitors. We show that firms often have an incentive to make it costly for its visitors to return after investigating rivals, either by making an "exploding offer" (which permits no return once the consumer leaves) or by offering a "buy-now discount" (which makes the price paid by first-time visitors lower than that for returning visitors). Prices often increase when return costs are artificially increased in this manner, and this harms consumers and market performance. If firms cannot commit to their buy-later price the outcome depends on whether there is an intrinsic cost of returning to a firm: if the intrinsic return cost is zero, it is often an equilibrium for firms not to offer any buy-now discount; if the return cost is positive, firms are forced to make exploding offers.

Keywords: Consumer search; oligopoly; price discrimination; high-pressure selling; buy-now discounts; costly recall (search for similar items in EconPapers)
JEL-codes: D18 D43 D83 (search for similar items in EconPapers)
Date: 2010-05
New Economics Papers: this item is included in nep-bec, nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://mpra.ub.uni-muenchen.de/22531/1/MPRA_paper_22531.pdf original version (application/pdf)

Related works:
Working Paper: Exploding Offers and Buy-Now Discounts (2011) Downloads
Working Paper: Exploding Offers and Buy-Now Discounts (2011) Downloads
Working Paper: Exploding Offers and Buy-Now Discounts (2010) Downloads
Working Paper: Exploding offers and buy-now discounts (2010) Downloads
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