The Effects of Recommended Retail Prices on Consumer and Retailer Behaviour

The Effects of Recommended Retail Prices on Consumer and Retailer Behaviour This paper presents results from an experiment on the effects of recommended retail prices on consumer and retailer behaviour. We present evidence that recommended retail prices, despite their non‐binding nature, influence consumers’ willingness to pay by setting a reference point. At a given price, consumers buy more the higher the recommended retail price is, and their demand drops at prices above the recommended retail price, even when it is entirely uninformative about the value of the product. Retailers in this study are subject to similar anchoring effects, but they do not anticipate consumers’ behaviour well and are thus not able to exploit their behavioural biases. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economica Wiley

The Effects of Recommended Retail Prices on Consumer and Retailer Behaviour

Economica , Volume 85 (339) – Jan 1, 2018
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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
Economica © 2018 The London School of Economics and Political Science
ISSN
0013-0427
eISSN
1468-0335
D.O.I.
10.1111/ecca.12218
Publisher site
See Article on Publisher Site

Abstract

This paper presents results from an experiment on the effects of recommended retail prices on consumer and retailer behaviour. We present evidence that recommended retail prices, despite their non‐binding nature, influence consumers’ willingness to pay by setting a reference point. At a given price, consumers buy more the higher the recommended retail price is, and their demand drops at prices above the recommended retail price, even when it is entirely uninformative about the value of the product. Retailers in this study are subject to similar anchoring effects, but they do not anticipate consumers’ behaviour well and are thus not able to exploit their behavioural biases.

Journal

EconomicaWiley

Published: Jan 1, 2018

References

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