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Is There a Loyalty-Enhancing Effect of Retroactive Price-Reduction Schemes?

Author

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  • Lisa Bruttel

    (University of Potsdam)

Abstract
This paper presents an experiment on the effect of retroactive price-reduction schemes on buyers’ repeated purchase decisions. Such schemes promise buyers a reduced price for all units that are bought in a certain time frame if the total quantity that is purchased passes a given threshold. This study finds a loyalty-enhancing effect of retroactive price-reduction schemes only if the buyers ex-ante expected that entering into the scheme would maximize their monetary gain, but later learn that they should leave the scheme. Furthermore, the effect crucially hinges on the framing of the price reduction.

Suggested Citation

  • Lisa Bruttel, 2019. "Is There a Loyalty-Enhancing Effect of Retroactive Price-Reduction Schemes?," CEPA Discussion Papers 05, Center for Economic Policy Analysis.
    • Handle: RePEc:pot:cepadp:05
    DOI: 10.25932/publishup-42768
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    More about this item

    Keywords

    rebate and discount; buyer behavior; risk aversion; loss aversion; regulation of dominant firms; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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