ADD-ON PRICING OVER REGIONAL BUSINESS CYCLES: EVIDENCE FROM EXTENDED WARRANTIES

Branko Bošković; Sacha Kapoor; Agnieszka Markiewicz; Barry Scholnick

doi:10.1111/iere.12710

ADD-ON PRICING OVER REGIONAL BUSINESS CYCLES: EVIDENCE FROM EXTENDED WARRANTIES

Branko Bošković
, Sacha Kapoor
, Agnieszka Markiewicz^*
, Barry Scholnick

^*Corresponding author for this work

Economics

Zymeworks, Inc.
University of Alberta

Research output: Contribution to journal › Article › Academic › peer-review

3 Citations (Scopus)

Abstract

Add ons are features or services that can enhance the functionality or quality of base goods. They are pervasive. Yet we know little about the behavior of add-on prices over the business cycle. We use 10 years of data from a nationwide Canadian retailer to investigate the local cyclicality of extended warranty prices, a classic add on. We find base prices are acyclical. Warranty prices are procyclical because local stores use warranties to make demand for durable goods less price-elastic. We show add ons amplify responses to national business cycles and study the implications for inflation rate bias.

Original language	English
Pages (from-to)	2019-2046
Number of pages	28
Journal	International Economic Review
Volume	65
Issue number	4
DOIs	https://doi.org/10.1111/iere.12710
Publication status	Published - Nov 2024

Bibliographical note

Publisher Copyright:
© 2024 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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10.1111/iere.12710

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abstract = "Add ons are features or services that can enhance the functionality or quality of base goods. They are pervasive. Yet we know little about the behavior of add-on prices over the business cycle. We use 10 years of data from a nationwide Canadian retailer to investigate the local cyclicality of extended warranty prices, a classic add on. We find base prices are acyclical. Warranty prices are procyclical because local stores use warranties to make demand for durable goods less price-elastic. We show add ons amplify responses to national business cycles and study the implications for inflation rate bias.",

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AU - Scholnick, Barry

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AB - Add ons are features or services that can enhance the functionality or quality of base goods. They are pervasive. Yet we know little about the behavior of add-on prices over the business cycle. We use 10 years of data from a nationwide Canadian retailer to investigate the local cyclicality of extended warranty prices, a classic add on. We find base prices are acyclical. Warranty prices are procyclical because local stores use warranties to make demand for durable goods less price-elastic. We show add ons amplify responses to national business cycles and study the implications for inflation rate bias.

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JO - International Economic Review

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ER -

ADD-ON PRICING OVER REGIONAL BUSINESS CYCLES: EVIDENCE FROM EXTENDED WARRANTIES

Abstract

Bibliographical note

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