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Discounts and deadlines in consumer search

Apr 2019
Working Paper
19-011
By  Dominic Coey, Bradley J. Larsen, Brennan C. Platt Brigham

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 a good reveal consumers' reservation prices. We find robust evidence supporting the theory, and demonstrate that ignoring buyer deadlines can distort estimates of market welfare, consumer demand, and underlying causes of market shifts.

Publication Keywords: 
equilibrium search
deadlines
discount channels
mechanism choice
se- quential auctions
endogenous valuations