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

  • Natalia Shestakova
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    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.

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    Paper provided by The Center for Economic Research and Graduate Education - Economics Institute, Prague in its series CERGE-EI Working Papers with number wp418.

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    Date of creation: Sep 2010
    Date of revision:
    Handle: RePEc:cer:papers:wp418
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