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Zero as a Special Price: The True Value of Free Products

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  • Kristina Shampanier

    ()
    (Massachusetts Institute of Technology, 38 Memorial Drive, E56-311, Cambridge, Massachusetts 02142)

  • Nina Mazar

    ()
    (Joseph L. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario M5S 3E6, Canada)

  • Dan Ariely

    ()
    (Duke University, One Towerview Road, Durham, North Carolina 27708)

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    Abstract

    When faced with a choice of selecting one of several available products (or possibly buying nothing), according to standard theoretical perspectives, people will choose the option with the highest cost–benefit difference. However, we propose that decisions about free (zero price) products differ, in that people do not simply subtract costs from benefits but instead they perceive the benefits associated with free products as higher. We test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods, but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price. In contrast with a standard cost–benefit perspective, in the zero-price condition, dramatically more participants choose the cheaper option, whereas dramatically fewer participants choose the more expensive option. Thus, people appear to act as if zero pricing of a good not only decreases its cost, but also adds to its benefits. After documenting this basic effect, we propose and test several psychological antecedents of the effect, including social norms, mapping difficulty, and affect. Affect emerges as the most likely account for the effect.

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    File URL: http://dx.doi.org/10.1287/mksc.1060.0254
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 26 (2007)
    Issue (Month): 6 (11-12)
    Pages: 742-757

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    Handle: RePEc:inm:ormksc:v:26:y:2007:i:6:p:742-757

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    Keywords: free; zero; affect; pricing;

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    Cited by:
    1. Driouchi, Ahmed & Chetioui, Youssef & Baddou, Meryem, 2011. "How zero price affects demand?: experimental evidence from the Moroccan telecommunication market," MPRA Paper 32352, University Library of Munich, Germany, revised 20 Jul 2011.
    2. Luís Cabral, 2012. "Lock in and switch: Asymmetric information and new product diffusion," Quantitative Marketing and Economics, Springer, vol. 10(3), pages 375-392, September.
    3. Elahi, Ehsan & Lamba, Narasimha & Ramaswamy, Chinthana, 2013. "How can we improve the performance of supply chain contracts? An experimental study," International Journal of Production Economics, Elsevier, vol. 142(1), pages 146-157.
    4. Juan Nicolau, 2012. "Battle royal: Zero-price effect vs relative vs referent thinking," Marketing Letters, Springer, vol. 23(3), pages 661-669, September.
    5. Kamleitner, Bernadette & Hoelzl, Erik & Kirchler, Erich, 2010. "Experiencing costs and benefits of a loan transaction: The role of cost-benefit associations," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 1047-1056, December.
    6. Euy-Young Jung & Chulwoo Baek & Jeong-Dong Lee, 2012. "Product survival analysis for the App Store," Marketing Letters, Springer, vol. 23(4), pages 929-941, December.
    7. Gila Fruchter & Eitan Gerstner & Paul Dobson, 2011. "Fee or free? How much to add on for an add-on," Marketing Letters, Springer, vol. 22(1), pages 65-78, March.
    8. Spears, Dean, 2014. "Decision costs and price sensitivity: Field experimental evidence from India," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 169-184.
    9. Fabio Galeotti & Daniel John Zizzo, 2014. "Competence versus Trustworthiness: What Do Voters Care About?," University of East Anglia Applied and Financial Economics Working Paper Series 060, School of Economics, University of East Anglia, Norwich, UK..
    10. Bernal, Noelia & Carpio, Miguel A. & Klein, Tobias J., 2014. "The Effects of Access to Health Insurance for Informally Employed Individuals in Peru," IZA Discussion Papers 8213, Institute for the Study of Labor (IZA).
    11. Elvik, Rune & Ramjerdi, Farideh, 2014. "A comparative analysis of the effects of economic policy instruments in promoting environmentally sustainable transport," Transport Policy, Elsevier, vol. 33(C), pages 89-95.
    12. Benjamin Edelman, 2009. "Priced and Unpriced Online Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 21-36, Summer.
    13. Dean E. Spears, 2009. "Bounded Rationality as Deliberation Costs: Theory and Evidence from a Pricing Field Experiment in India," Working Papers 1199, Princeton University, Department of Economics, Center for Economic Policy Studies..
    14. Tesssa Bold, 2011. "Does Abolishing Fees Reduce School Quality?� Evidence from Kenya," Economics Series Working Papers CSAE WPS/2011-04, University of Oxford, Department of Economics.
    15. Aileen Heinberg & Angela A. Hung & Arie Kapteyn & Annamaria Lusardi & Anya Savikhin Samek & Joanne Yoong, 2014. "Five Steps to Planning Success. Experimental Evidence from U.S. Households," NBER Working Papers 20203, National Bureau of Economic Research, Inc.

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