All External Reference Prices Are Not the Same: How Magnitude, Source, and Fairness Shape Payment for Digital Goods

Geneviève Bassellier () and Jui Ramaprasad ()
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Geneviève Bassellier: Desautels Faculty of Management, McGill University, Montreal, Quebec H4A 1G5, Canada
Jui Ramaprasad: Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

Information Systems Research, 2023, vol. 34, issue 4, 1761-1774

Abstract: External reference prices (ERPs) are recognized to influence consumers’ payment for physical goods. We examine the role of ERPs in a digital goods context, emphasizing the importance of disentangling the effects of two components of ERPs: the magnitude and the source. We first examine the impact of the price magnitude and then investigate how the impact of ERP magnitude is moderated by its source―the specific context in which the reference price is set—and by its perceived fairness. Using a laboratory experiment with 471 participants, we first establish that as an ERP increases, payment for digital songs also increases. Furthermore, the source of the ERP motivates payment differently. Indeed, consumers’ willingness to pay is more strongly influenced by a price recommended by the site than by information on the price paid by others. Last, we show that the perceived fairness of the ERP matters. Results indicate that when the ERP is perceived to be high, the marginal effect of an increase in ERP on payment is smaller than when it is perceived to be fair. We contribute to the understanding of the effect of ERPs in digital context, where the source of an ERP can be varied, and perception of fairness can be heterogenous across consumers. This has implications for the design of digital platforms seeking to sell digital goods using a flexible pricing scheme.

Keywords: external reference price; digital goods; price fairness; pricing scheme; PWYW; e-commerce (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orisre:v:34:y:2023:i:4:p:1761-1774

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