A Model of Add-On Pricing*

Glenn Ellison

123 citations0/0 files storedThe Quarterly Journal of Economics

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Consumer Market Behavior and Pricing Merger and Competition Analysis Supply Chain and Inventory Management

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.

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References

1971A model of price adjustment 1987Markets with Consumer Switching Costs 2006Coordination and Lock-In: Competition with Switching Costs and Network Effects 1988Dynamic Competition with Switching Costs 1985Finitely Repeated Games 1992Multi-Period Competition with Switching Costs 2003Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data 1994Retail Pricing and Advertising Strategies

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