IDEAS home Printed from https://ideas.repec.org/p/apc/wpaper/2017-106.html
   My bibliography  Save this paper

The Impact of Price Information on Consumer Behavior: An Experiment

Author

Listed:
  • Francisco B. Galarza

    (Universidad del Pacifico)

  • Gabriella Wong

    (Innovations for Poverty Action)

Abstract

We conduct blind tests to examine the connection between consumer’s choices and price differentials, for two goods with different levels of observable quality, bottled spring water and toilet paper (we pose that toilet paper’s quality is more easily observable). We gave subjects two samples of those goods, with no labels for their brands, but with two different prices. Given that the samples were exactly the same, we aimed at testing whether the price differentials influenced their perceptions of quality, for a given level of quality observability. The most striking result is that quality information inferred via price differentials have significant effects on consumer choices, when such difference is relatively high and quality is not easy to observe. Moreover, in such a case, prices shape the perceptions of quality: "If it is expensive, it tastes good". In contrast, when quality is easy to observe, we find no significant relationship between price differentials and perceived quality.

Suggested Citation

  • Francisco B. Galarza & Gabriella Wong, 2017. "The Impact of Price Information on Consumer Behavior: An Experiment," Working Papers 2017-106, Peruvian Economic Association.
  • Handle: RePEc:apc:wpaper:2017-106
    as

    Download full text from publisher

    File URL: http://perueconomics.org/wp-content/uploads/2014/01/WP-106.pdf
    File Function: Application/pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, March.
    2. Goldstein, Robin & Almenberg, Johan & Dreber, Anna & Emerson, John W. & Herschkowitsch, Alexis & Katz, Jacob, 2008. "Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings," Journal of Wine Economics, Cambridge University Press, vol. 3(01), pages 1-9, March.
    3. Harold J. Leavitt, 1954. "A Note on Some Experimental Findings About the Meanings of Price," The Journal of Business, University of Chicago Press, vol. 27, pages 205-205.
    4. Héctor Maletta, 2010. "La evolución del Homo economicus: problemas del marco de decisión racional en Economía," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 33(65), pages 9-68.
    5. H. Leibenstein, 1950. "Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 64(2), pages 183-207.
    6. Rao, Akshay R & Monroe, Kent B, 1988. " The Moderating Effect of Prior Knowledge on Cue Utilization in Product Evaluations," Journal of Consumer Research, Oxford University Press, vol. 15(2), pages 253-264, September.
    7. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 647-658.
    8. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
    9. Francisco Galarza & Mauricio Power (ed.), 2012. "Economía experimental: nuevas metodologías para analizar el comportamiento individual," Books, Fondo Editorial, Universidad del Pacífico, edition 1, volume 1, number 12-01, June.
    10. Torsten Bornemann & Christian Homburg, 2011. "Psychological Distance and the Dual Role of Price," Journal of Consumer Research, Oxford University Press, vol. 38(3), pages 490-504.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Price-quality; Experimental Economics; behavioral pricing; placebo effect; consumer decision-making;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:apc:wpaper:2017-106. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nelson Ramírez-Rondán). General contact details of provider: http://edirc.repec.org/data/peruvea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.