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...Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay

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Author Info
Tanjim Hossain (Hong Kong University of Science & Technology)
John Morgan (University of California, Berkeley)

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Abstract

Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of field experiments on eBay. In theory, the ending auction price should vary inversely with the shipping charge to leave the total price paid constant. Contrary to the theory, we find that charging a high shipping cost and starting the auction at a low opening price leads to higher numbers of bidders and higher revenues when the shipping charge is not excessive. We show that these results can be accounted for by boundedly rational bidding behavior such as loss-aversion with separate mental accounts for different attributes of the price or disregard for shipping costs.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1429&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): advances.6 (2006)
Issue (Month): 2 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:advances.6:y:2006:i:2:n:3

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Web page: http://www.bepress.com/bejeap

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Related research
Keywords: internet auctions; e-retailing; field experiments; price framing; mental accounting; loss aversion;

Other versions of this item:

Find related papers by JEL classification:
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Glenn Ellison & Sara Fisher Ellison, 2006. "Internet Retail Demand: Taxes, Geography, and Online-Offline Competition," NBER Working Papers 12242, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Young Han Lee & Ulrike Malmendier, 2007. "The Bidder's Curse," NBER Working Papers 13699, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Rupert Sausgruber & Jean-Robert Tyran, 2008. "Tax Salience, Voting, and Deliberation," Discussion Papers 08-21, University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  5. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-23.

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