Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Wednesday, July 11, 2012

Discount pricing

Posted by D. Daniel Sokol

Mark Armstrong Department of Economics-University of Oxford and Yongmin Chen Department of Economics-University of Colorado address Discount pricing.

ABSTRACT: This paper investigates "discount pricing", the common marketing practice whereby a price is listed as a discount from an earlier, or regular, price. We discuss two reasons why a discounted price---as opposed to a merely low price---can make a rational consumer more willing to purchase the item. First, the information that the product was initially sold at a high price can indicate the product is high quality. Second, a discounted price can signal that the product is an unusual bargain, and there is little point searching for lower prices. We also discuss a behavioral model in which consumers have an intrinsic preference for paying a below-average price. Here, a seller has an incentive to offer different prices to identical consumers, so that a proportion of its consumers enjoy a bargain. We discuss in each framework when a seller has an incentive to offer false discounts, in which the reference price is exaggerated.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/07/discount-pricing.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0167674160e8970b

Listed below are links to weblogs that reference Discount pricing:

Comments

Post a comment