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Exploding Offers with Experimental Consumer Goods

Author

Listed:
  • Alexander L. Brown

    (Texas A&M University, Department of Economics)

  • Ajalavat Viriyavipart

    (Texas A&M University, Department of Economics)

  • Xiaoyuan Wang

    (University of Electronic Science and Technology of China, School of Management and Economics)

Abstract

Recent theoretical research indicates that search deterrence strategies are generally optimal for sellers in consumer goods markets. Yet search deterrence is not always employed in such markets. To understand this incongruity, we develop an experimental market where profit-maximizing strategy dictates sellers should exercise one form of search deterrence, exploding offers. We find that buyers over-reject exploding offers relative to optimal. Sellers underutilize exploding offers relative to optimal play, even conditional on buyer over-rejection. This tendency dissipates when sellers make offers to computerized buyers, suggesting their persistent behavior with human buyers may be due to a preference rather than a miscalculation.

Suggested Citation

  • Alexander L. Brown & Ajalavat Viriyavipart & Xiaoyuan Wang, 2014. "Exploding Offers with Experimental Consumer Goods," Working Papers 20141006-001, Texas A&M University, Department of Economics.
    • Handle: RePEc:txm:wpaper:20141006-001
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    File URL: https://pvsessions.tamu.edu/RePEc/brownexplode.pdf
    File Function: First version, 2014
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    References listed on IDEAS

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    Cited by:

    1. Mark Armstrong & Jidong Zhou, 2016. "Search Deterrence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 26-57.

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    More about this item

    Keywords

    exploding offer; search deterrence; experimental economics; quantal response equilibrium;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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