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Exploding Offers with Experimental Consumer Goods

Alexander Brown (), Ajalavat Viriyavipart () and Xiaoyuan Wang ()

No 20141006-001, Working Papers from Texas A&M University, Department of Economics

Abstract: Recent theoretical research indicates that search deterrence strategies are generally optimal for sellers in consumer goods markets. Yet search deterrence is not always employed in such markets. To understand this incongruity, we develop an experimental market where profit-maximizing strategy dictates sellers should exercise one form of search deterrence, exploding offers. We find that buyers over-reject exploding offers relative to optimal. Sellers underutilize exploding offers relative to optimal play, even conditional on buyer over-rejection. This tendency dissipates when sellers make offers to computerized buyers, suggesting their persistent behavior with human buyers may be due to a preference rather than a miscalculation.

Keywords: exploding offer; search deterrence; experimental economics; quantal response equilibrium (search for similar items in EconPapers)
JEL-codes: C91 D21 L10 M31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-exp and nep-mkt
Date: 2014-10-06
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