Curbing obfuscation: Empower consumers or regulate firms?

We experimentally examine the effects of drip pricing on seller strategies and buyer behavior as well as the implications for regulation. Sellers set two prices: a base price and a drip price. At first, buyers only observe the base prices and make a tentative purchase decision. Revealing the sellers' drip prices, however, comes at a cost. We find that sellers only compete in base prices and set the highest possible drip price. This makes the base price a reliable indicator for the lowest total price, and few consumers invest in drip-price search. A comparison with Bertrand competition reveals significant effects: With drip pricing, consumer surplus is lower, and seller profits are higher. When there is uncertainty over possible drip sizes, sellers also compete over drips, and consumers more frequently fail to identify the cheapest offer. Bertrand competition also leads to higher consumer surplus and lower firm profits in this case. Hence, our results point to positive effects of drip-price regulation.

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Unfair commercial practices in a pit market: evidence from an artefactual field experiment

Bogliacino

Charris

Codagnone

et al. 2022

Behav. Public Policy

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Commercial practices such as drip pricing, reference pricing and best-price guarantee can be used to set higher prices and mislead consumers, but protective measures can restore efficiency. In a placebo-controlled market experiment, we examined a treatment allowing for the use and misuse of commercial practices. Three additional treatments tested the effects of formal sanctions, informal sanctions and a regret nudge. We found that commercial practices led to higher prices, cheating was systematic and regret nudging was ineffective. Furthermore, formal and informal sanctions reduced both the likelihood of using commercial practices and the likelihood of cheating, leading to welfare increases.

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Curbing obfuscation: Empower consumers or regulate firms?

Cited by 3 publications

References 64 publications

Less is more: Information overload in the labelling of fish and aquaculture products

Less is more: Information overload in the labelling of fish and aquaculture products

Drip pricing and its regulation: Experimental evidence

Unfair commercial practices in a pit market: evidence from an artefactual field experiment

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