Behavioral Pricing and Price Fairness

Lisa E. Bolton and Haipeng (Allan) Chen

Chapter 3 in New Directions in Behavioral Pricing, 2024, pp 51-78 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Pricing is a fundamental aspect of the marketplace, and traditional economic models typically assume that firms set prices to maximize their profit. However, consumer reactions to pricing are driven by psychological, as well as economic, considerations. Research has demonstrated, for example, that consumers may not react to small price differences, leading to “kinks” in the classic demand curves (e.g., Monroe 1971). As another example, the manner in which economically equivalent prices are presented affects consumer reactions, yielding some of the well-known framing effects (e.g., Thaler 1985). Additionally, prices involve numerical information and many consumers make errors in calculating prices, which could further bias price information processing (e.g., Chen and Sun 2018). The voluminous work that aims at developing descriptive (versus prescriptive) models of consumer behaviors has germinated into the field of behavioral pricing that focuses on examinations of how consumers deal with price information in the marketplace…

Keywords: New Currencies; Loyalty Program Miles as a Virtual Currency; Uncertainty in Value; Choice of Payment Mode; Loyalty Program Management; Affective Price Evaluations; Pain of Paying; Metacognitive Experience In Price Evaluation; The Ease-of-Recall Pricing Effect; The Ease-of-Computation Effect; Hedonic Price Evaluations; Price Fairness; Dual Entitlement; Communicating Price Changes; Communicating Price Differences; Internal Reference Price; Gain–Loss Asymmetry; Price Thresholds; Processing Price Information; Framing Price Changes; Framing Price Differences; Buyers' Purchase Goals; Round Versus Sharp (Odd) Prices; Price Promotion Information Processing; Ease of Computing Price Differences; Size of Right Digit Endings; Absolute Versus Relative Price Differences; Communicating Price Differences; Effects on Quality Inferences And Internal Reference Prices; Post-Promotion Price Expectations; Perceived Fairness of Price Promotions; Pay-What-You-Want (PWYW); Social Preferences; Models of Finitely Repeated Games with Incomplete Information; Signaling; Self-Signaling; Social Signaling; Social Preferences; Partitioned Pricing; Bargains; Efficiency Frontier (search for similar items in EconPapers)
JEL-codes: D4 L11 M31 (search for similar items in EconPapers)
Date: 2024
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