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The Impact of Price Information on Consumer Behavior: An Experiment

Author

Listed:
  • Francisco B. Galarza

    (Universidad del Pacifico)

  • Gabriella Wong

    (Innovations for Poverty Action)

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.

Suggested Citation

  • Francisco B. Galarza & Gabriella Wong, 2017. "The Impact of Price Information on Consumer Behavior: An Experiment," Working Papers 106, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:2017-106
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    References listed on IDEAS

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    More about this item

    Keywords

    Price-quality; Experimental Economics; behavioral pricing; placebo effect; consumer decision-making;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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