Working Paper: CEPR ID: DP8115
Authors: Sofronis Clerides; Pascal Courty
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 Codes: D4; L12; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Promotion of small pack size (D18) | Sales of large pack size (L66) |
| Type of brand (premium vs. value) (M37) | Sales response to promotions (M51) |
| Consumer attention levels (D12) | Substitution behavior between pack sizes (D11) |