Do consumers value price transparency?
- 655 Downloads
We examine the role of price transparency in consumer preferences and demand. We assemble a detailed dataset on the driving school industry in Portugal to quantify how firms present the price of the course of instruction, and its individual components, to potential students. Our unique data allows us to estimate a structural model of school choice and measure the impact of varying levels of price information on demand. The results show that consumers are willing to pay a significant amount for price transparency, on average 11% of the service price, and that consumer demographics drive heterogeneous preferences for transparency.
KeywordsPricing Transparency Information Consumer valuation
JEL ClassificationD43 D83 L13 L15 L84
We thank Susana Paulino at Instituto da Mobilidade e dos Transportes for access to the data and information about the industry. Ana Isabel Horta provided excellent research assistance, and Susana Belo assisted with local data collection. We thank Elisabeth Honka, JF Houde, and Yi-Lin Tsai for fruitful conversations throughout the writing of this paper and the co-editor Sanjog Misra and two anonymous reviewers for valuable comments. We also thank the seminar participants at the Alfred Lerner College of Business and Economics (The University of Delaware), Carlson School of Management (University of Minnesota), Foster School of Business (University of Washington), LeBow College of Business (Drexel University), Sauder School of Business (University of British Columbia), Stern School of Business (New York University), and Wharton School (University of Pennsylvania). We gratefully acknowledge support from the Office of the Vice President for Research at the University of Minnesota, and from the Global Initiatives Research Program at the University of Pennsylvania. All errors are our own.
- Hossain, T., & Morgan, J. (2006). Plus shipping and handling: revenue (non) equivalence in field experiments on eBay. Advances in Economic Analysis and Policy, 6(2), 1–30.Google Scholar
- Morwitz, V. G., Greenleaf, E. A., & Johnson, E. J. (1998). Divide and prosper: consumers’ reaction to partitioned prices. Journal of Marketing Research, 35(4), 453–463.Google Scholar
- Seim, K., Vitorino, M. A., & Muir, D. (2017). Drip pricing when consumers have limited foresight: evidence from driving school fees. Working Paper, University of Minnesota.Google Scholar
- Swanson, A. (2013). Physician investment in hospitals: specialization, incentives and the quality of cardiac care. Working Paper, University of Pennsylvania.Google Scholar
- Zheng, F. (2016). Spatial competition and preemptive entry in the discount retail industry. Working Paper, Columbia University.Google Scholar