Search Deterrence in Experimental Consumer Goods Markets

Recent theoretical research indicates that search deterrence strategies are generally optimal for sellers in consumer goods markets. Yet search deterrence is not always employed in such markets. To understand this incongruity, we develop an experimental market where profit-maximizing strategy dictates sellers should exercise one form of search deterrence, exploding offers. We find buyers are three times more likely to deviate from optimal strategy by rejecting rather than accepting these offers. Sellers also demonstrate a reluctance to use the offers that is lessened when facing computerized buyers. Bounded rationality and other regarding preferences appear to drive buyer and seller behavior, respectively. The differential rate of buyer suboptimal play shifts the equilibrium of the game to a point where seller gains from the use of exploding offers is greatly reduced. In sum, the results suggest the benefits of search deterrence may be substantially less than what theory predicts.