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The Impact of Price Information on Consumer Behavior: An Experiment

Francisco Galarza and Gabriella Wong
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Gabriella Wong: Innovations for Poverty Action

No 106, Working Papers from Peruvian Economic Association

Abstract: We conduct blind tests to examine the connection between consumer’s choices and price differentials, for two goods with different levels of observable quality, bottled spring water and toilet paper (we pose that toilet paper’s quality is more easily observable). We gave subjects two samples of those goods, with no labels for their brands, but with two different prices. Given that the samples were exactly the same, we aimed at testing whether the price differentials influenced their perceptions of quality, for a given level of quality observability. The most striking result is that quality information inferred via price differentials have significant effects on consumer choices, when such difference is relatively high and quality is not easy to observe. Moreover, in such a case, prices shape the perceptions of quality: "If it is expensive, it tastes good". In contrast, when quality is easy to observe, we find no significant relationship between price differentials and perceived quality.

Keywords: Price-quality; Experimental Economics; behavioral pricing; placebo effect; consumer decision-making (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 D89 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-mkt and nep-upt
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