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Bait and Ditch : Consumer Naïveté and Salesforce Incentives

Title data

Herweg, Fabian ; Rosato, Antonio:
Bait and Ditch : Consumer Naïveté and Salesforce Incentives.
In: Journal of Economics & Management Strategy. Vol. 29 (2020) Issue 1 . - pp. 97-121.
ISSN 1530-9134
DOI: https://doi.org/10.1111/jems.12336

Official URL: Volltext

Abstract in another language

We analyze a model of price competition between a transparent retailer and a deceptive one in a market where a fraction of consumers is naïve. The transparent retailer is an independent shop managed by its owner. The deceptive retailer belongs to a chain and is operated by a manager. The two retailers sell an identical base product, but the deceptive one also offers an add‐on. Rational consumers never consider buying the add‐on while naïve ones can be “talked” into buying it. By offering the manager a contract that pushes him to never sell the base good without the add‐on, the chain can induce an equilibrium in which both retailers obtain more‐than‐competitive profits. The equilibrium features price dispersion and market segmentation, with the deceptive retailer targeting only naïve consumers whereas the transparent retailer serves only rational ones.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: add-on pricing; bait and switch; consumer naïveté; incentive contract
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy > Chair Economics VIII: International Competition Policy - Univ.-Prof. Dr. Fabian Herweg
Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences
300 Social sciences > 330 Economics
Date Deposited: 17 Feb 2020 09:26
Last Modified: 24 Jul 2020 07:01
URI: https://eref.uni-bayreuth.de/id/eprint/53467