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Field Before After
Trial Title Third Study on Rebate Redemption Rates Buy Baits and Consumer Sophistication: Field Evidence from Instant Rebates
Trial Status in_development completed
Abstract See pre-analysis plan. Are consumers in the marketplace aware of their cognitive limitations? Which limitations can be profitably exploited by firms? I answer these questions in the context of a ubiquitous form of price discrimination: "instant rebates" that require active redemption at the point of sale. I show theoretically how to recover consumers’ subjective beliefs about their cognitive limitations---that prevent them from redeeming the rebate---from aggregate demand responses to rebates, redemption reminders, and a simple discount that does not require redemption. In a large-scale field experiment with a major online retailer, I find that consumers correctly increase demand when the firm offers a redemption reminder, but they fail to reduce demand when the firm increases the hassle required to redeem. Structural estimates reveal that, while consumers are fully sophisticated about the probability of forgetting to redeem instant rebates, they vastly underestimate the \textit{hassle} of redeeming it by 20 EUR per consumer. Exploiting this misperception more than doubles the profitability of rebates.
JEL Code(s) D18, D61, D83, D49, D91, L21
Last Published May 13, 2020 03:47 PM March 29, 2024 09:49 AM
Additional Keyword(s) consumer sophistication, consumer protection, price discrimination, field experiments
Keyword(s) Other, Welfare Other, Welfare
Did you obtain IRB approval for this study? No Yes
Building on Existing Work Yes
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Irbs

Field Before After
IRB Name University of Münster
IRB Approval Date July 18, 2019
IRB Approval Number N/A
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