Do consumers take advantage of common pricing standards? An experimental investigation

Gaudeul and Sugden have hypothesized that, when some but not all competing products are priced in a common standard and when consumers are liable to make errors in cross-standard price comparisons, consumers confine their attention to common-standard offers. This ‘largest common standard’ (LCS) heuristic provides incentives for sellers to use common standards, and so differs from most ‘consider-then-choose’ decision processes by not exposing consumers to exploitation by sellers. We report an experimental test of this hypothesis, using choice tasks similar to those represented in the Gaudeul–Sugden model. These tasks are parameterized such that participants, given their actual cognitive abilities, would benefit by using the LCS heuristic. However, we find little evidence that this heuristic is used. Most participants use a ‘dominance editing’ (DE) rule which begins by eliminating transparently dominated offers. This rule incentivises sellers not to use common standards. Since DE is less efficient than LCS, given participants’ cognitive abilities, the use of DE is evidence of overconfidence.