Can Bait and Switch Benefit Consumers?

Eitan Gerstner and James D. Hess

We present a model that leads to an equilibrium with characteristics similar to the following stylized facts observed in retail markets: (a) Retailers advertise only selected brands; (b) Often low priced advertised brands are understocked; (c) In-store promotions are biased towards more expensive substitute brands. Together these practices constitute illegal bait and switch. Is this phenomenon necessarily harmful to consumers and to the economy? We show that bait and switch can benefit consumers because utility is created through in-store promotions and price competition is enhanced. This suggest that the FTC investigate further its ban on bait and switch.

(Pricing; Promotion; Regulation; Bait and Switch)