Take Action

Home | Faculty & Research Overview | Research

Research Details

Price Discrimination as an Adverse Signal: Why an Offer to Spread Payments May Hurt Demand, Marketing Science

Abstract

We offer an explanation for why firms may forgo an opportunity to price discriminate. By revealing that a product is being sold to a broad range of segments the retailer implicitly claims that the product is suitable for each segment. However, this may yield an adverse quality signal. The prediction is illustrated in the paper using a formal model and tested empirically by investigating how the introduction of installment billing affects demand in a mail-order catalog that targets customers who purchase premium quality products. Installment billing plans offer retailers the opportunity to discriminate between customers who face a high cost of capital and other customers who are less credit constrained and less price sensitive. We predict that the introduction of installment billing may prompt an unfavorable quality inference and reduce demand amongst the catalog

Type

Article

Author(s)

Eric T. Anderson, Duncan Simester

Date Published

2001

Citations

Anderson, T. Eric, and Duncan Simester. 2001. Price Discrimination as an Adverse Signal: Why an Offer to Spread Payments May Hurt Demand. Marketing Science. 20(3): 315-327.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action