A Model of Add-on Pricing

Glenn Ellison

NBER Working Paper No. 9721
Issued in May 2003
NBER Program(s):   IO

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.

(325 K)

Published: Ellison, Glenn. "A Model Of Add-on Pricing," Quarterly Journal of Economics, 2005, v120(2,May), 585-637.

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