Friday, December 24, 2010
Posted by D. Daniel Sokol
Of course, on the last day of the shopping season, I have found a relevant paper on Sales, Quantity Surcharge, and Consumer Inattention by Sofronis Clerides (University of Cyprus; CEPR; RCEA) and
Pascal Courty (University of Victoria; CEPR).
ABSTRACT: Quantity surcharges occur when firms market a product in two sizes and offer a promotion on the small size: the large size then costs more per unit than the small one. When quantity surcharges occur the sales of the large size decrease only slightly despite the fact that the small size is a cheaper option - a clear arbitrage opportunity. This behavior is consistent with the notion of rationally inattentive consumers that has been developed in models of information frictions. We discuss implications for consumer decision making, demand estimation, and firm pricing.