Sequential Search with a Price Freeze Option - Theory and Experimental Evidence

Emanuel Marcu, Charles Noussair

Research output: Working paperDiscussion paperOther research output

459 Downloads (Pure)

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.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages70
Volume2018-029
Publication statusPublished - 4 Sep 2018

Publication series

NameCentER Discussion Paper
Volume2018-029

Fingerprint

Sequential search
Option theory
Prediction
Option prices
Economics
Experiment
Laboratory experiments
Costs

Keywords

  • sequential search
  • prize freezing
  • experiment
  • imperfect recall

Cite this

Marcu, E., & Noussair, C. (2018). Sequential Search with a Price Freeze Option - Theory and Experimental Evidence. (CentER Discussion Paper; Vol. 2018-029). Tilburg: CentER, Center for Economic Research.
Marcu, Emanuel ; Noussair, Charles. / Sequential Search with a Price Freeze Option - Theory and Experimental Evidence. Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper).
@techreport{dacf4815c00144c3bda3f85977fc7655,
title = "Sequential Search with a Price Freeze Option - Theory and Experimental Evidence",
abstract = "We study the economics of price freeze options (PFOs), by introducing theminto a model of sequential search. The model makes a number of predictions,which we test in a laboratory experiment. The experiment varies (1) whetherfreezing is possible or not, (2) the cost of freezing, and (3) the length of the timehorizon. We consider both settings in which prior offers cannot be recalled,and those in which recall is imperfect. We find that the observed treatmenteffects are consistent with the predictions of our model, though on averagesearches are terminated earlier than predicted. Interestingly, the extent ofundersearching is magnified by the presence of an affordable PFO.",
keywords = "sequential search, prize freezing, experiment, imperfect recall",
author = "Emanuel Marcu and Charles Noussair",
note = "CentER Discussion Paper Nr. 2018-029",
year = "2018",
month = "9",
day = "4",
language = "English",
volume = "2018-029",
series = "CentER Discussion Paper",
publisher = "CentER, Center for Economic Research",
type = "WorkingPaper",
institution = "CentER, Center for Economic Research",

}

Marcu, E & Noussair, C 2018 'Sequential Search with a Price Freeze Option - Theory and Experimental Evidence' CentER Discussion Paper, vol. 2018-029, CentER, Center for Economic Research, Tilburg.

Sequential Search with a Price Freeze Option - Theory and Experimental Evidence. / Marcu, Emanuel; Noussair, Charles.

Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper; Vol. 2018-029).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Sequential Search with a Price Freeze Option - Theory and Experimental Evidence

AU - Marcu, Emanuel

AU - Noussair, Charles

N1 - CentER Discussion Paper Nr. 2018-029

PY - 2018/9/4

Y1 - 2018/9/4

N2 - We study the economics of price freeze options (PFOs), by introducing theminto a model of sequential search. The model makes a number of predictions,which we test in a laboratory experiment. The experiment varies (1) whetherfreezing is possible or not, (2) the cost of freezing, and (3) the length of the timehorizon. We consider both settings in which prior offers cannot be recalled,and those in which recall is imperfect. We find that the observed treatmenteffects are consistent with the predictions of our model, though on averagesearches are terminated earlier than predicted. Interestingly, the extent ofundersearching is magnified by the presence of an affordable PFO.

AB - We study the economics of price freeze options (PFOs), by introducing theminto a model of sequential search. The model makes a number of predictions,which we test in a laboratory experiment. The experiment varies (1) whetherfreezing is possible or not, (2) the cost of freezing, and (3) the length of the timehorizon. We consider both settings in which prior offers cannot be recalled,and those in which recall is imperfect. We find that the observed treatmenteffects are consistent with the predictions of our model, though on averagesearches are terminated earlier than predicted. Interestingly, the extent ofundersearching is magnified by the presence of an affordable PFO.

KW - sequential search

KW - prize freezing

KW - experiment

KW - imperfect recall

M3 - Discussion paper

VL - 2018-029

T3 - CentER Discussion Paper

BT - Sequential Search with a Price Freeze Option - Theory and Experimental Evidence

PB - CentER, Center for Economic Research

CY - Tilburg

ER -

Marcu E, Noussair C. Sequential Search with a Price Freeze Option - Theory and Experimental Evidence. Tilburg: CentER, Center for Economic Research. 2018 Sep 4. (CentER Discussion Paper).