Discounts and Deadlines in Consumer Search
American Economic Review
vol. 110,
no. 12, December 2020
(pp. 3748-85)
Abstract
We present a new equilibrium search model where consumers initially search among discount opportunities, but are willing to pay more as a deadline approaches, eventually turning to full-price sellers. The model predicts equilibrium price dispersion and rationalizes discount and full-price sellers coexisting without relying on ex ante heterogeneity. We apply the model to online retail sales via auctions and posted prices, where failed attempts to purchase reveal consumers' reservation prices. We find robust evidence supporting the theory. We quantify dynamic search frictions arising from deadlines and show how, with deadline-constrained buyers, seemingly neutral platform fee increases can cause large market shifts.Citation
Coey, Dominic, Bradley J. Larsen, and Brennan C. Platt. 2020. "Discounts and Deadlines in Consumer Search." American Economic Review, 110 (12): 3748-85. DOI: 10.1257/aer.20190460Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D44 Auctions
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L81 Retail and Wholesale Trade; e-Commerce