Exploding Offers and Buy-Now Discounts

48 Pages Posted: 15 Oct 2011

See all articles by Mark Armstrong

Mark Armstrong

University College London - Department of Economics

Jidong Zhou

University College London - Department of Economics

Date Written: September 2011

Abstract

A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly, before she can investigate rival deals in the market. We consider a market with sequential consumer search in which firms can achieve this 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). We show that firms often have an incentive to use these sales techniques, regardless of their ability to commit to their selling policy. We examine the impact of these sales techniques on market performance. Inducing consumers to buy quickly not only reduces the quality of the match between consumers and products, but may also raise market prices.

Keywords: Consumer search, oligopoly, price discrimination, high-pressure selling

Suggested Citation

Armstrong, Mark and Zhou, Jidong, Exploding Offers and Buy-Now Discounts (September 2011). NYU Working Paper No. 2451/29991. Available at SSRN: https://ssrn.com/abstract=1944448

Mark Armstrong

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Jidong Zhou (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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