Armstrong, Mark and Chen, Yongmin (2012): Discount pricing.
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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.
|Item Type:||MPRA Paper|
|Original Title:||Discount pricing|
|Keywords:||reference dependence; price discounts; sales tactics; false advertising|
|Subjects:||D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection
M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness
|Depositing User:||Mark Armstrong|
|Date Deposited:||28. May 2012 13:14|
|Last Modified:||19. May 2015 12:47|
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