...plus shipping and handling: Revenue (non) equivalence in field experiments on ebay
Many firms divide the price a consumer pays for a good into two pieces---the price for the item itself and the price for shipping and handling. With fully rational customers, the exact division between the two prices is irrelevant---only the total price matters. We test this hypothesis by selling matched pairs of CDs and Xbox games in a series of field experiments on eBay. In theory, the ending auction price should vary inversely with the shipping charge to leave the total price paid constant. Contrary to the theory, we find that charging a high shipping cost and starting the auction at a low opening price leads to higher numbers of bidders and higher revenues when the shipping charge is not excessive. We show that these results can be accounted for by boundedly rational bidding behavior such as loss-aversion with separate mental accounts for different attributes of the price or disregard for shipping costs.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Lucking-Reiley, 1999.
"Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1063-1080, December.
- David Lucking-Reiley, 1999. "Using field experiments to test equivalence between auction formats: Magic on the internet," Framed Field Experiments 00183, The Field Experiments Website.
- Richard H. Thaler, 2008.
"Mental Accounting and Consumer Choice,"
INFORMS, vol. 27(1), pages 15-25, 01-02.
- David Lucking-Reiley & John A. List, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September.
- Xavier Gabaix & David Laibson, 2006.
"Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,"
The Quarterly Journal of Economics,
MIT Press, vol. 121(2), pages 505-540, May.
- Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
- Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc.
- Smith, Michael D & Brynjolfsson, Erik, 2001.
"Consumer Decision-Making at an Internet Shopbot: Brand Still Matters,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 49(4), pages 541-58, December.
- Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters, in: E-commerce, pages 541-558 National Bureau of Economic Research, Inc.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
When requesting a correction, please mention this item's handle: RePEc:feb:natura:00270. 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: (Joe Seidel)
If references are entirely missing, you can add them using this form.