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Overcoming Consumer Biases in the Choice of Pricing Schemes: A Lab Experiment

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  • Natalia Shestakova

Abstract

This paper uses experimental data to investigate possible biases in consumers' choice of pricing schemes when their demand is perfectly inelastic but uncertain. I consider threepart pricing schemes (i.e. fixed fee, included units, extra-unit price). The analysis suggests a strong bias towards the pricing scheme with the number of included units equal to the expected demand. I interpret this bias as an “anchoring effect” of the expected demand on consumer decisions. Interestingly, subjects invest less effort into the choice problem when the opportunity cost of a mistake is higher. Still, the higher opportunity cost of a mistake helps subjects overcome the bias.

Suggested Citation

  • Natalia Shestakova, 2010. "Overcoming Consumer Biases in the Choice of Pricing Schemes: A Lab Experiment," CERGE-EI Working Papers wp418, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp418
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    References listed on IDEAS

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    More about this item

    Keywords

    heuristics; price discrimination; experiment.;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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