Limited Time Offer and Consumer Search

This paper examines a widely observed yet theoretically underexplored sales tactic: the limited time offer. By focusing on price-directed search markets, we offer a novel perspective on the application of limited time offers by firms and their implications for social welfare. We build a search model where firms advertise dynamic pricing to influence a consumer’s search order. Across various model settings, we demonstrate that limited time offers serve as the most effective pricing tool for firms to achieve search prominence or implement search discrimination, with their impact on social welfare varying depending on the market context. In particular, although existing literature suggests that limited time offers are anticompetitive in markets where prices are unobservable presearch, our findings show that, in markets with observable prices, limited time offers can enhance social efficiency in certain cases by facilitating a socially optimal search order. This paper was accepted by Dmitri Kuksov, marketing. Funding: Z. Gong thanks the National Science Foundation of China [Grants 72332004 and 72373025] for the support of this work. Supplemental Material: The online appendices are available at https://doi.org/10.1287/mnsc.2022.00445 .