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on Marketing |
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Issue of 2010‒09‒18
two papers chosen by Joao Carlos Correia Leitao University of Beira Interior and Technical University of Lisbon |
| By: | Monica Giulietti (Nottingham University Business School); Michael Waterson (University of Warwick); Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: | This paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who find it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our estimates with observed switching behaviour and find they match well. |
| Keywords: | electricity, consumer search, price competition |
| JEL: | C14 L13 D83 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2010-09&r=mkt |
| By: | Armstrong, Mark; Zhou, Jidong |
| 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. |
| Keywords: | Consumer search; oligopoly; price discrimination; high-pressure selling; exploding offers; costly recall |
| JEL: | D18 D83 D43 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24849&r=mkt |