Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, November 19, 2010

Exploding Offers and Buy-Now Discounts

Posted by D. Daniel Sokol

Mark Armstrong and Jidong Zhou (both UCL - Econ) discuss Exploding Offers and Buy-Now Discounts.

ABSTRACT: A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly. We consider a market with sequential consumer search in which firms often encourage first-time visitors to buy immediately, 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 for immediate purchase lower than the regular price). Prices often increase when these policies are used. If firms cannot commit to their sales policy, the outcome depends on whether consumer incur an intrinsic cost of returning to a firm: if there is no such return cost, it is often an equilibrium for firms to offer a uniform price to both first-time and returning visitors; if the return cost is positive, however, firms are forced to make exploding offers.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/11/exploding-offers-and-buy-now-discounts.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef013488ac6206970c

Listed below are links to weblogs that reference Exploding Offers and Buy-Now Discounts:

Comments

Post a comment