Field
Trial Title
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Before
Third Study on Rebate Redemption Rates
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After
Buy Baits and Consumer Sophistication: Field Evidence from Instant Rebates
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Field
Trial Status
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Before
in_development
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After
completed
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Field
Abstract
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Before
See pre-analysis plan.
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After
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.
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Field
JEL Code(s)
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Before
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After
D18, D61, D83, D49, D91, L21
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Field
Last Published
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Before
May 13, 2020 03:47 PM
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After
March 29, 2024 09:49 AM
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Field
Additional Keyword(s)
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Before
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After
consumer sophistication, consumer protection, price discrimination, field experiments
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Field
Keyword(s)
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Before
Other, Welfare
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After
Other, Welfare
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Field
Did you obtain IRB approval for this study?
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Before
No
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After
Yes
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Field
Building on Existing Work
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Before
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After
Yes
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