Sales, Quantity Surcharge, and Consumer Inattention

32 Pages Posted: 29 Nov 2010

See all articles by Sofronis Clerides

Sofronis Clerides

University of Cyprus; Centre for Economic Policy Research (CEPR); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Pascal Courty

University of Victoria; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

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Date Written: November 2010

Abstract

Quantity surcharges occur when firms market a product in two sizes and offer a promotion on the small size: the large size then costs more per unit than the small one. When quantity surcharges occur the sales of the large size decrease only slightly despite the fact that the small size is a cheaper option - a clear arbitrage opportunity. This behavior is consistent with the notion of rationally inattentive consumers that has been developed in models of information frictions. We discuss implications for consumer decision making, demand estimation, and firm pricing.

Keywords: consumer inattention, nonlinear pricing, promotions, quantity discounts, quantity surcharge, sales

JEL Classification: D4, L12, L13

Suggested Citation

Clerides, Sofronis and Courty, Pascal, Sales, Quantity Surcharge, and Consumer Inattention (November 2010). CEPR Discussion Paper No. DP8115, Available at SSRN: https://ssrn.com/abstract=1714887

Sofronis Clerides (Contact Author)

University of Cyprus ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

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Pascal Courty

University of Victoria ( email )

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European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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