How zero price affects demand?: experimental evidence from the Moroccan telecommunication market

To select one of several products (or to buy nothing) is a daily decision. Its foundations vary from one person to another and are based on perceptions, preferences, and other criteria. The standard theoretical perspective conveys that people choose options with the highest net benefit. However, the zero price model, proposed by Shampanier, Mazar, and Ariely (SMA) (2007), suggests that decisions about free (zero price) products do not simply subtract costs from benefits but instead perceive other gains and costs associated with free products. This paper tests this second alternative by contrasting demand for telecommunication products in Morocco, mainly SMS and calls. The price difference is maintained between the cheaper and expensive options such that the cheaper product is priced at either a low positive price (cost condition) or zero price (free condition). The results suggest that more participants choose the cheaper option, whereas fewer participants choose the more expensive one. People act as if zero pricing is a special price, as suggested by the zero price model. The paper tests also the affect as an explanation to the zero price effect. The result suggests that the price effect cannot be fully attributed to this dimension.