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Behavioral Pricing and Price Fairness

In: New Directions in Behavioral Pricing

Author

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  • Lisa E. Bolton
  • Haipeng (Allan) Chen

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…

Suggested Citation

  • Lisa E. Bolton & Haipeng (Allan) Chen, 2024. "Behavioral Pricing and Price Fairness," World Scientific Book Chapters, in: Chezy Ofir (ed.), New Directions in Behavioral Pricing, chapter 3, pages 51-78, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789811292231_0003
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    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;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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