Abstract
We study the economics of price freeze options (PFOs), by introducing them
into a model of sequential search. The model makes a number of predictions,
which we test in a laboratory experiment. The experiment varies (1) whether
freezing is possible or not, (2) the cost of freezing, and (3) the length of the time
horizon. We consider both settings in which prior offers cannot be recalled,
and those in which recall is imperfect. We find that the observed treatment
effects are consistent with the predictions of our model, though on average
searches are terminated earlier than predicted. Interestingly, the extent of
undersearching is magnified by the presence of an affordable PFO.
into a model of sequential search. The model makes a number of predictions,
which we test in a laboratory experiment. The experiment varies (1) whether
freezing is possible or not, (2) the cost of freezing, and (3) the length of the time
horizon. We consider both settings in which prior offers cannot be recalled,
and those in which recall is imperfect. We find that the observed treatment
effects are consistent with the predictions of our model, though on average
searches are terminated earlier than predicted. Interestingly, the extent of
undersearching is magnified by the presence of an affordable PFO.
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | CentER, Center for Economic Research |
| Number of pages | 70 |
| Volume | 2018-029 |
| Publication status | Published - 4 Sept 2018 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2018-029 |
Keywords
- sequential search
- prize freezing
- experiment
- imperfect recall