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

Emanuel Marcu, Charles Noussair

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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

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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.