Working Paper: NBER ID: w9721
Authors: Glenn Ellison
Abstract: This paper examines a competitive model of add-on pricing, the practice of advertising low prices for one good in hopes of selling additional products (or a higher quality product) to consumers at a high price at the point of sale. The main conclusion is that add-on pricing softens price competition between firms and results in higher equilibrium profits.
Keywords: No keywords provided
JEL Codes: L13; M30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| addon pricing (D44) | softens price competition (D43) |
| softens price competition (D43) | higher equilibrium profits (D53) |
| addon pricing (D44) | higher equilibrium profits (D53) |
| adverse selection problem (D82) | influences competition dynamics (L11) |
| addon pricing (D44) | differentiated pricing outcomes for high and low types (D40) |
| differentiated pricing outcomes for high and low types (D40) | impacts overall firm profits (L21) |
| presence of low types (C69) | affects pricing strategies (L11) |
| pricing structure that mitigates competitive pressures (D40) | preferred by firms (L20) |