Overcoming Consumer Biases in the Choice of Pricing Schemes: A Lab Experiment

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper uses experimental data to investigate possible biases in consumers' choice of pricing schemes when their demand is perfectly inelastic but uncertain. I consider threepart pricing schemes (i.e. fixed fee, included units, extra-unit price). The analysis suggests a strong bias towards the pricing scheme with the number of included units equal to the expected demand. I interpret this bias as an “anchoring effect” of the expected demand on consumer decisions. Interestingly, subjects invest less effort into the choice problem when the opportunity cost of a mistake is higher. Still, the higher opportunity cost of a mistake helps subjects overcome the bias.

Keywords: heuristics; price discrimination; experiment. (search for similar items in EconPapers)
JEL-codes: D42 D83 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp418

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