Large Price Discounts Research Articles

An Alternative Approach to Estimating Foreclosure and Short Sale Discounts

Current research documents astonishingly large price discounts for foreclosures and short sales. However, such outsized estimates may largely be due to omitted variables bias. We propose an innovative methodology relying on appraisers’ ability to match properties along both observable and unobservable attributes when performing appraisals. Our empirical approach, which relies on the use of appraisal fixed effects, produces foreclosure and short sale discounts of approximately 5% after controlling for a rich set of characteristics, including quality and condition, attributable mostly to the stigma associated with distress itself. We show that these lower estimates are not due to appraisers selecting high-price distressed properties as comps and are robust across a wide variety of subsamples and under alternative estimation methods.

The effect of product touch information and sale proneness on consumers' responses to price discounts

AbstractSince price discounts are costly and can negatively affect consumers' perceptions of quality, it is crucial to identify the factors that make them effective in stimulating purchase behavior. Drawing on cue utilization theory, we examine price discount effectiveness in affecting consumers' reliance on the sale cue based on the provided product touch information as an intrinsic cue and individual consumer differences in sale proneness. Two experimental studies indicate that price discount information, product touch information, and sale proneness interact to determine consumers' responses. Perceived quality is the underlying mechanism behind the observed effects. For nonsale‐prone consumers, product touch information favorably influences responses to large price discounts by addressing product quality concerns and enhancing purchase confidence, but has no effect for regularly priced or low discounted products. For sale‐prone consumers, product touch information is not effective in increasing their responses regardless of the discount size. A qualitative study provides support for these results and highlights the role of perceived quality and purchase confidence. The research contributes to behavioral pricing, cue utilization theory, and sensory marketing and suggests that marketing managers should provide consumers with product touch information when implementing high discounts for products for which prepurchase touch is important.

Should firms display the sale price using larger font?

Prior work has shown that evaluations may be lower when retail price discounts are either small or large (vs. moderate), due to concerns about discount depth perceptions and/or product quality. Building from work on perceptual salience, we show that displaying the sale price in larger (vs. similar) font vis-à-vis the regular price makes the sale price more “salient”. In turn, when retail price discounts are either small or large (but, not moderate), such salience impacts how consumers process price discount information, mitigating concerns relating to discount depth perceptions and/or product quality, and so increasing evaluations. In effect, displaying the sale price using a relatively larger font increases consumers’ evaluations, somewhat mitigating the negative aspects of using small or large price discounts. We propose theory contributions towards research on display effects and pricing. Further, the proposed mechanism in this research note is easy-to-implement, and is expected to increase sales.

Allocation discretion, price discounts and returns in Turkish initial public offerings

PurposeThis study aims to investigate whether underwriters exercise their allocation discretion to offer favorable discounts to institutional investors.Design/methodology/approachThe research covers 173 offerings at Borsa Istanbul between 2010 and September 2021. Two hypotheses related to allocation discretion are developed and tested by means of probit, ordinary least squares and two-stage least squares regressions. Heckman selection regressions are used for robustness tests.FindingsAllocation discretion is catered toward institutional investors who account for more than 56% of all initial allocations adjusted by gross proceeds. Close to 84% of all gross proceeds come from offerings that allocation discretion is exercised. These discretionary offerings are sold with larger price discounts, yet provide lower initial returns, while evidence points to reallocation to retail investors due to weak demand from institutional investors.Research limitations/implicationsDespite using the population of firms in the research period, the sample size is small relative to more developed markets. The research period cannot be extended because allocation discretion is allowed in 2010.Practical implicationsThe research highlights the importance of institutional and foreign investors to the equity markets. This issue is relevant due to the ongoing flight of foreign investors from emerging economies and the increasing participation of small investors in the stock markets.Social implicationsThe study cautions retail investors against greater (re)allocations by underwriters who may seek to compensate for the loss of their foreign investor base and urges policymakers to regain foreign investors.Originality/valueTo the best of the authors’ knowledge, this is the first research paper to use actual discounts disclosed in the prospectus to test the predictions related to allocation discretion. The study also contributes to the emerging markets literature by documenting allocation practices of the Turkish underwriters for the first time.

Time-sensitive markdown strategies for perishable products based on dynamic quality evaluation

Purpose This study aims to provide a time- and price-sensitive market strategy for merchants to handle the markdown price strategy. The market demand for perishable products is usually price – and quality (freshness) – sensitive. The proper handling of markdown-price strategies can help merchants enhance competitiveness and maximize operational performance. Design/methodology/approach A markdown strategy consisting of price and markdown time was developed to explore the properties of market strategies based on the dynamic quality evaluation. The strategy considers multiple price discounts and multiple markdown times. The optimal price decisions in each stage and the optimal markdown times were derived during the selling season. Findings The results showed the following. A retailer always raises the initial price if it wants to adopt multiple price-markdown strategies. A high initial price may lead to a high inventory at the early stage and bring the next price reduction in advance. Large price discounts can be used to reduce the inventory later. The higher the previous price, the shorter the interval between the next price reduction. The markdown strategies showed that the regular discount as a new business model is not the best pricing model for perishable products. A time- and price-sensitive strategy, however, can increase operational performance and provide new insights for perishable products. Originality/value The results showed the following. A retailer always raises the initial price if it wants to adopt multiple price-markdown strategies. A high initial price may lead to a high inventory at the early stage and bring the next price reduction in advance. Large price discounts can be used to reduce the inventory later. The higher the previous price, the shorter the interval between the next price reduction. The markdown strategies showed that the regular discount as a new business model is not the best pricing model for perishable products. A time- and price-sensitive strategy, however, can increase operational performance and provide new insights for perishable products.

Adoption of Biosimilar Infliximab for Rheumatoid Arthritis, Ankylosing Spondylitis, and Inflammatory Bowel Diseases in the EU5: A Budget Impact Analysis Using a Delphi Panel.

Introduction: Introducing biosimilar infliximab for the treatment in rheumatology (rheumatoid arthritis and ankylosing spondylitis) and inflammatory bowel disease (Crohn's disease and ulcerative colitis) may reduce treatment costs associated with biologics. This study aimed to investigate the budget impact of adopting biosimilar infliximab in five European countries, considering that the budget impact includes the adoption of biosimilar infliximab and the availability of biologic alternatives such as vedolizumab, biosimilar etanercept, biosimilar rituximab, and other relevant factors.Methods: An existing budget impact model was adapted to forecast the budget impact in the UK, Germany, France, Spain, and Italy. Epidemiological parameters were derived from published literature reviewed in July 2015. Current market shares of biologics were derived from Therapy Watch (2012/2013 data). Respondents in a Delphi panel, conducted in 2015 and consisting of several leading rheumatologists and gastroenterologists from different nationalities, were asked to forecast uptake of biosimilar infliximab and estimate the proportion of patients eligible for a particular type of biological treatment, including biosimilar infliximab. Scenario analyses assessed the influence of various factors, including price reductions, on the budget.Results: Uptake of biosimilar infliximab was particularly expected for naïve patients; switching patients that already received other biologics was not expected much. Market shares after 5 years of biosimilar infliximab were ~2% in rheumatology in all five countries and in gastroenterology ranged from 4% in France to over 30% in Italy. Except for France, budgets were expected to decrease for rheumatologic diseases. For gastroenterology, budgets were expected to decrease in Spain and Italy. Budgets were expected to increase substantially in the UK and Germany, due to the introduction of vedolizumab in the studied period. In France, budget was expected to slightly increase for ankylosing spondylitis, Crohn's Disease, and ulcerative collitis. Savings in budget were expected in all countries, for all diseases, when larger price discounts on biosimilar infliximab were used.Discussion and Conclusion: This study has shown that only when price reductions are large enough (i.e., 50% or more), physicians indicated that they will prescribe biosimilars. Policy makers should ensure substantial price reductions and stimulate physicians to use biosimilar products, to obtain savings in healthcare budgets.

Consumer processing of bundled prices: when do discounts matter?

PurposeThe purpose of this paper is to examine how factors that affect the processing of bundled price information moderate consumer response to a price discount on the bundle. Literature on categorical vs piecemeal processing of information predicts that consumers will be inclined to process a bundled price categorically unless circumstances encourage a piecemeal processing approach. Marketing relevant variables that foster piecemeal processing should result in stronger effects for discount size on bundle choice.Design/methodology/approachThis paper reports two experiments that demonstrate that the effect of discount size on bundle choice is moderated by increased salience of price information and lower familiarity with the purchase situation, both of which increase item price processing.FindingsWhen the presentation format encouraged item price processing with more salient item prices or a less familiar purchase situation, a discount on the bundle significantly increased the likelihood of bundle choice. When circumstances did not encourage item price processing, discounts on the bundle relative to the item prices had little effect on choice.Research limitations/implicationsAdditional research is recommended to test boundary conditions, the effects of additional presentational/situational factors and explicit consumer welfare implications.Practical implicationsResults indicate that a price discount on a bundle is only effective/necessary when the purchase situation motivates and enables consumers to engage in piecemeal processing of item price information. When large price discounts are offered on the bundle, marketers should create a situation that encourages item price processing, in order to maximize the effect.Originality/valueThis paper adds to a relatively new perspective in the bundling literature which has not fully examined if and when consumers process item price information. It is found that responsiveness to price discounts is enhanced by managerially relevant variables that increase the likelihood of item price processing.

Performance Evaluation and Financial Market Runs

This paper develops a model in which performance evaluation causes runs by fund managers and results in asset fire-sales. Performance evaluation nonetheless is efficient as it disciplines managers. Optimal performance evaluation combines absolute and relative components in order to make runs less likely. When runs induce large price discounts, this requires a high degree of absolute performance evaluation and a low degree of relative performance evaluation. The overall costs of using performance evaluation are shown to be decreasing in asset liquidity, implying that more developed financial markets should have more delegation. However, such markets are not less prone to runs since higher delegation offsets the stability-enhancing impact of asset liquidity.

Performance Evaluation and Financial Market Runs*

This paper develops a model in which performance evaluation causes runs by fund managers and results in asset fire sales. Performance evaluation nonetheless is efficient as it disciplines managers. Optimal performance evaluation combines absolute and relative components in order to make runs less likely. When runs induce large price discounts, this requires a high degree of absolute performance evaluation and a low degree of relative performance evaluation. The overall costs of using performance evaluation are shown to be decreasing in asset liquidity, implying that more developed financial markets should have more delegation. However, such markets are not less prone to runs.

Preserving Slave Families for Profit: Traders' Incentives and Pricing in the New Orleans Slave Market

We investigate determinants of slave family discounts in the New Orleans slave market. We find large price discounts for families unrelated to scale effects, childcare costs, legal restrictions, or transport costs. We posit that because family members voluntarily cared for each other, sellers sometimes found it advantageous to keep families together (when families included needy or dependent members). Evidence from ship manifests carrying slaves for sale in New Orleans provides direct evidence for selectivity bias in explaining slave family discounts. Children likely to have been shipped with their mothers are 1 to 2 inches shorter than other children.

The Dynamics of Automobile Expenditures

This paper presents a dynamic model for light motor vehicles. Consumers solve an optimal stopping problem in deciding if they want a new automobile and when in the model year to purchase it. This dynamic approach allows for determining how the mix of consumers evolves over the model year and for measuring consumers’ substitution patterns across products and time. I find that temporal substitution is significant, driving consumers’ entry into and exit from the market. Through counterfactuals, I show that because consumers will temporarily substitute to a large degree, failure to account for automakers’ dynamic pricing strategies results in an inaccurate picture of the return to using pricing incentives. A further finding is that the large price discounts typically offered at the end of the model year result in price discrimination by inducing price-sensitive consumers to delay purchasing new vehicles until the later months of the model year.

Consumer attitudes and automotive transactions: the difference between new-car and used-car markets in Japan

This paper examines the possible impacts of changing consumer attitudes on the use of new information and communication technology and its results on the terms and conditions of automobile transactions, by integrating a used-car market study and a new-car market study into one coherent study. We find that consumers who are active in information gathering and terms-of-trade negotiation are able to obtain larger price discounts on new cars and higher trade-in or sell-off price for their own cars. There is synergy between internet usage and active information gathering. However, data also reveals limited rationality on the side of consumers: their negotiation strategy (hard-pressing on new car prices but less aggressive on sell-off prices) is suboptimal. Also, even though we are in an information age, human factors are shown to be very important in negotiation.

Optimal Portfolio Choice and the Valuation of Illiquid Securities

Traditional models of portfolio choice assume that investors can continuously trade unlimited amounts of securities. In reality, investors face liquidity constraints. I analyze a model where investors are restricted to trading strategies that are of bounded variation. An investor facing this type of illiquidity behaves very differently from an unconstrained investor. A liquidity-constrained investor endogenously acts as if facing borrowing and short-selling constraints, and one may take riskier positions than in liquid markets. I solve for the shadow cost of illiquidity and show that large price discounts can be sustained in a rational model. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.