Optimal Decision of Exploding Offer based on Consumer Search Model

Lei Wang

2022

Abstract

Exploding offer becomes more and more popular business management strategy among firms. This paper studies firm’s choices of price and strategy (whether to choose exploding offer) as well as the welfare implications in duopoly competition based on consumer search model. Through backwards induction method, we find that both firms choose free recall (an exploding offer) with a small (large) search cost; and with a moderate search cost, one firm chooses free recall while the other chooses an exploding offer. Consumer surplus reaches its maximum if the search cost is low (high) and therefore both firms choose an exploding offer (free recall). In addition, this paper extends the basic model with two extensions, considering the existence of consumer’s observational learning and limited comparability of price. Our conclusions may offer practical suggestions about business management.

Paper Citation

in Harvard Style

Wang L. (2022). Optimal Decision of Exploding Offer based on Consumer Search Model. In Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM, ISBN 978-989-758-593-7, pages 87-91. DOI: 10.5220/0011160600003440

in Bibtex Style

@conference{bdedm22,
author={Lei Wang},
title={Optimal Decision of Exploding Offer based on Consumer Search Model},
booktitle={Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM,},
year={2022},
pages={87-91},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0011160600003440},
isbn={978-989-758-593-7},
}

in EndNote Style

TY - CONF

JO - Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM,
TI - Optimal Decision of Exploding Offer based on Consumer Search Model
SN - 978-989-758-593-7
AU - Wang L.
PY - 2022
SP - 87
EP - 91
DO - 10.5220/0011160600003440