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Price as a Stimulus to Think: The Case for Willful Overpricing

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Author Info

  • Luc Wathieu

    ()
    (Harvard Business School, Soldiers Field, Boston, Massachusetts 02163)

  • Marco Bertini

    ()
    (London Business School, Regent's Park, London, NW1 4SA United Kingdom)

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    Abstract

    Consumers aware of a new benefit will often experience uncertainty about its personal relevance or usage value. This paper shows that the decision to deliberate further to resolve this uncertainty and reach a polarized judgment of personal relevance critically depends on the posted price. In particular, a price above the consumer's initial willingness to pay might be thought provoking and enhance the perception of relevance with a certain probability. This behavioral mechanism is introduced formally and by way of an experiment with reference to the purchase of organic lettuce and fair-trade coffee. Accounting for the effect of price as a stimulus to think, a monopolistic firm should either over price (“transgressive pricing”) or under price (“regressive pricing”) in comparison to the consumer's willingness to pay. Under certain circumstances, the firm should also empower consumers with means that reduce the effort of deliberation.

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    File URL: http://dx.doi.org/10.1287/mksc.1060.0222
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 26 (2007)
    Issue (Month): 1 (01-02)
    Pages: 118-129

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    Handle: RePEc:inm:ormksc:v:26:y:2007:i:1:p:118-129

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    Related research

    Keywords: production differentiation; marketing strategy; consumer behavior; pricing; cost of thinking; entry decision; consumer empowerment;

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    Cited by:
    1. Alfred Taudes & Christian Rudloff, 2012. "Integrating inventory control and a price change in the presence of reference price effects: a two-period model," Computational Statistics, Springer, vol. 75(1), pages 29-65, February.
    2. Gensler, Sonja & Hinz, Oliver & Skiera, Bernd & Theysohn, Sven, 2012. "Willingness-to-pay estimation with choice-based conjoint analysis: Addressing extreme response behavior with individually adapted designs," European Journal of Operational Research, Elsevier, vol. 219(2), pages 368-378.
    3. Anja Lambrecht & Katja Seim & Naufel Vilcassim & Amar Cheema & Yuxin Chen & Gregory Crawford & Kartik Hosanagar & Raghuram Iyengar & Oded Koenigsberg & Robin Lee & Eugenio Miravete & Ozge Sahin, 2012. "Price discrimination in service industries," Marketing Letters, Springer, vol. 23(2), pages 423-438, June.
    4. Erica Herpen & Erjen Nierop & Laurens Sloot, 2012. "The relationship between in-store marketing and observed sales for organic versus fair trade products," Marketing Letters, Springer, vol. 23(1), pages 293-308, March.
    5. Patrice Cailleba & Herbert Casteran, 2010. "Do Ethical Values Work? A Quantitative Study of the Impact of Fair Trade Coffee on Consumer Behavior," Journal of Business Ethics, Springer, vol. 97(4), pages 613-624, December.

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