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Abstract

This article illustrates the importance of shopping and marketing strategies when the price-setting institution typically used to model retail exchange is modified to allow buyer-specific discounts from the list price. Unlike the simple price-setting game, a variety of shopping and marketing strategies can be rational in this more complex setting. Moreover, different strategy combinations yield distinct predictions: Equilibrium prices may either essentially match those predicted in the absence of discounts, or they may be at the collusive level. Data from laboratory markets with discount opportunities similarly indicate two distinct strategy-dependent behavioral outcomes. © 1996 John Wiley & Sons, Inc.