Do Consumers Take Advantage of Common Pricing Standards? : An Experimental Investigation

Sugden, Robert and Zheng, Jiwei (2018) Do Consumers Take Advantage of Common Pricing Standards? : An Experimental Investigation. Management Science, 64 (5). ISSN 0025-1909

Abstract

Gaudeul and Sugden [Gaudeul A, Sugden R (2012) Spurious complexity and common standards in markets for consumer goods. Economica 79(314):209–225] have hypothesized that when some but not all competing products are priced in a common standard, consumers who are liable to make errors in cross-standard price comparisons use decision rules that discriminate in favor of common-standard offers. Such behavior incentivizes sellers to use common standards. We report an experimental test of this hypothesis, using choice tasks similar to those represented in the Gaudeul–Sugden model. We find that offers priced in common standards were more likely to be inspected but less likely to be chosen, and that subjects gained little benefit from common pricing standards that applied to some but not all offers. Most subjects used “dominance editing” operations that eliminated transparently dominated offers, either as an initial shortlisting device or while offers were being sorted. Because these operations discriminate against common-standard offers, their use incentivizes sellers not to use common standards.