A Model of Add-on Pricing
NBER Working Paper No. 9721
This paper examines a competitive model of add-on pricing, the practice of advertising low prices for one good in hopes of selling additional products (or a higher quality product) to consumers at a high price at the point of sale. The main conclusion is that add-on pricing softens price competition between firms and results in higher equilibrium profits.
Published: Ellison, Glenn. "A Model Of Add-on Pricing," Quarterly Journal of Economics, 2005, v120(2,May), 585-637.