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Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia

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Author Info
Nava Ashraf
James Berry
Jesse M. Shapiro

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Abstract

The controversy over whether and how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use. We test this hypothesis in a field experiment in Zambia using door-to-door marketing of a home water purification solution. Our methodology separates the screening effect of prices (charging more changes the mix of buyers) from the psychological effect of prices (charging more stimulates greater use for a given buyer). We find that higher prices screen out those who use the product less. The amount paid does not have a psychological effect on use, but there is some evidence that the act of paying increases use. We use our data to estimate an economic model of product use, simulate counterfactuals, and develop tentative implications for pricing policy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13247.

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Date of creation: Jul 2007
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Handle: RePEc:nbr:nberwo:13247

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Find related papers by JEL classification:
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs

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