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How zero price affects demand?: experimental evidence from the Moroccan telecommunication market

Author

Listed:
  • Driouchi, Ahmed
  • Chetioui, Youssef
  • Baddou, Meryem

Abstract

To select one of several products (or to buy nothing) is a daily decision. Its foundations vary from one person to another and are based on perceptions, preferences, and other criteria. The standard theoretical perspective conveys that people choose options with the highest net benefit. However, the zero price model, proposed by Shampanier, Mazar, and Ariely (SMA) (2007), suggests that decisions about free (zero price) products do not simply subtract costs from benefits but instead perceive other gains and costs associated with free products. This paper tests this second alternative by contrasting demand for telecommunication products in Morocco, mainly SMS and calls. The price difference is maintained between the cheaper and expensive options such that the cheaper product is priced at either a low positive price (cost condition) or zero price (free condition). The results suggest that more participants choose the cheaper option, whereas fewer participants choose the more expensive one. People act as if zero pricing is a special price, as suggested by the zero price model. The paper tests also the affect as an explanation to the zero price effect. The result suggests that the price effect cannot be fully attributed to this dimension.

Suggested Citation

  • Driouchi, Ahmed & Chetioui, Youssef & Baddou, Meryem, 2011. "How zero price affects demand?: experimental evidence from the Moroccan telecommunication market," MPRA Paper 32352, University Library of Munich, Germany, revised 20 Jul 2011.
  • Handle: RePEc:pra:mprapa:32352
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    File URL: https://mpra.ub.uni-muenchen.de/32352/1/MPRA_paper_32352.pdf
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    References listed on IDEAS

    as
    1. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
    2. Gruber, Harald & Verboven, Frank, 2001. "The evolution of markets under entry and standards regulation -- the case of global mobile telecommunications," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1189-1212, July.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    4. Sippel, Reinhard, 1997. "An Experiment on the Pure Theory of Consumer's Behaviour," Economic Journal, Royal Economic Society, vol. 107(444), pages 1431-1444, September.
    5. Lyn Squire, 1973. "Some Aspects of Optimal Pricing for Telecommunications," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 515-525, Autumn.
    6. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 1-54.
    7. Kristina Shampanier & Nina Mazar & Dan Ariely, 2007. "Zero as a Special Price: The True Value of Free Products," Marketing Science, INFORMS, vol. 26(6), pages 742-757, 11-12.
    8. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    free; zero; price; affect; telecommunications; Morocco.;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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