Pricing Scheme Choice: How Process Affects Outcome

Natalia Shestakova

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Standard price discrimination theories are based on the assumption that consumers use their future demand estimates to evaluate net utility of each pricing scheme and choose the scheme with the highest value. However, some evidence suggests that consumers might not always behave this way. The experiment presented in this paper shows that indeed a substantial proportion of subjects choose not to evaluate the net utility of the offered pricing schemes. Instead, they select from pricing schemes based on a comparison of the schemes' parameters. Interestingly, this selection approach leads to the correct pricing-scheme choice when subjects are not well aware of their demand, and to the incorrect choice when they are. The results call for alternative theories of price discrimination and corresponding policy implications.

Keywords: Choice process; heuristics; price discrimination; experiment (search for similar items in EconPapers)
JEL-codes: D42 D83 (search for similar items in EconPapers)
Date: 2010-07
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-mkt and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp411

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