Advertisement

Quantitative Marketing and Economics

, Volume 15, Issue 4, pp 305–339 | Cite as

Do consumers value price transparency?

  • Katja Seim
  • Maria Ana VitorinoEmail author
  • David M. Muir
Article
  • 655 Downloads

Abstract

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.

Keywords

Pricing Transparency Information Consumer valuation 

JEL Classification

D43 D83 L13 L15 L84 

Notes

Acknowledgements

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.

References

  1. Ackerberg, D. A. (2003). Advertising, learning, and consumer choice in experience good markets: an empirical examination. International Economic Review, 44(3), 1007–1040.CrossRefGoogle Scholar
  2. Berry, S., Levinsohn, J., & Pakes, A. (2004). Differentiated products demand systems from a combination of micro and macro data: the new car market. Journal of Political Economy, 112(1), 68–105.CrossRefGoogle Scholar
  3. Bertini, M., & Wathieu, L. (2008). Attention arousal through price partitioning. Marketing Science, 27(2), 236–246.CrossRefGoogle Scholar
  4. Burman, B., & Biswas, A. (2007). Partitioned pricing: can we always divide and prosper? Journal of Retailing, 83(4), 423–436.CrossRefGoogle Scholar
  5. Cacioppo, J. T., & Petty, R. E. (1982). The need for cognition. Journal of Personality and Social Psychology, 42(1), 116–131.CrossRefGoogle Scholar
  6. Carlin, B. I. (2009). Strategic price complexity in retail financial markets. Journal of Financial Economics, 91(3), 278–287.CrossRefGoogle Scholar
  7. Carlson, J. P., & Weathers, D. (2008). Examining differences in consumer reactions to partitioned prices with a variable number of price components. Journal of Business Research, 61, 724–731.CrossRefGoogle Scholar
  8. Cheema, A. (2008). Surcharges and seller reputation. Journal of Consumer Research, 35(1), 167–177.CrossRefGoogle Scholar
  9. Chioveanu, I., & Zhou, J. (2013). Price competition with consumer confusion. Management Science, 59(11), 2450–2469.CrossRefGoogle Scholar
  10. Ellison, G., & Ellison, S. F. (2009). Search, obfuscation, and price elasticities on the internet. Econometrica, 77(2), 427–452.CrossRefGoogle Scholar
  11. Ellison, G., & Wolitzky, A. (2012). A search cost model of obfuscation. The RAND Journal of Economics, 43(3), 417–441.CrossRefGoogle Scholar
  12. Gaynor, M., & Vogt, W. B. (2003). Competition among hospitals. RAND Journal of Economics, 34(4), 764–785.CrossRefGoogle Scholar
  13. Greenleaf, E. A., Johnson, E. J., Morwitz, V. G., & Shalev, E. (2016). The price does not include additional taxes, fees, and surcharges: a review of research on partitioned pricing. Journal of Consumer Psychology, 26(1), 105–124.CrossRefGoogle Scholar
  14. Honka, E, Hortaçsu, A, & Vitorino, M.A. (2017). Advertising, consumer awareness, and choice: evidence from the U.S. banking industry. The RAND Journal of Economics, 48, 611–646.CrossRefGoogle Scholar
  15. 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
  16. Kihlstrom, R. E., & Riordan, M. H. (1984). Advertising as a signal. Journal of Political Economy, 92(3), 427–450.CrossRefGoogle Scholar
  17. Kiljae, L., Choi, J., & Li, Y. J. (2014). Regulatory focus as a predictor of attitudes toward partitioned and combined pricing. Journal of Consumer Psychology, 24(3), 355–362.CrossRefGoogle Scholar
  18. Kim, H. M. (2006). The effect of salience on mental accounting: how integration versus segregation of payment influences purchase decisions. Journal of Behavioral Decision Making, 19(4), 381–391.CrossRefGoogle Scholar
  19. Krishna, A., Briesch, R., Lehmann, D. R., & Yuan, H. (2002). A meta-analysis of the impact of price presentation on perceived savings. Journal of Retailing, 78(2), 101–118.CrossRefGoogle Scholar
  20. Lee, Y. H., & Han, C. Y. (2002). Partitioned pricing in advertising: effects on brand and retailer attitudes. Marketing Letters, 13(1), 27–40.CrossRefGoogle Scholar
  21. Lynch, J. G., & Ariely, D. (2000). Wine online: search costs affect competition on price, quality, and distribution. Marketing Science, 19(1), 83–103.CrossRefGoogle Scholar
  22. Milgrom, P., & Roberts, J. (1986). Price and advertising signals of product quality. Journal of Political Economy, 94(4), 796–821.CrossRefGoogle Scholar
  23. 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
  24. Nelson, P. (1974). Advertising as information. Journal of Political Economy, 82(4), 729–754.CrossRefGoogle Scholar
  25. Piccione, M., & Spiegler, R. (2012). Price competition under limited comparability. The Quarterly Journal of Economics, 127(1), 97–135.CrossRefGoogle Scholar
  26. Rossi, F., & Chintagunta, P. (2016). Price transparency and retail prices: evidence from fuel price signs in the italian motorway. Journal of Marketing Research, 53(3), 407–423.CrossRefGoogle Scholar
  27. 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
  28. Swanson, A. (2013). Physician investment in hospitals: specialization, incentives and the quality of cardiac care. Working Paper, University of Pennsylvania.Google Scholar
  29. Völckner, F., Rühle, A., & Spann, M. (2012). To divide or not to divide? The impact of partitioned pricing on the informational and sacrifice effects. Marketing Letters, 23(3), 719–730.CrossRefGoogle Scholar
  30. Wilson, C. M. (2010). Ordered search and equilibrium obfuscation. International Journal of Industrial Organization, 28(5), 496–506.CrossRefGoogle Scholar
  31. Xia, L., & Monroe, K. B. (2004). Price partitioning on the internet. Journal of Interactive Marketing, 18(4), 63–73.CrossRefGoogle Scholar
  32. Zheng, F. (2016). Spatial competition and preemptive entry in the discount retail industry. Working Paper, Columbia University.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2017
Corrected publication October/2017

Authors and Affiliations

  • Katja Seim
    • 1
    • 2
    • 3
  • Maria Ana Vitorino
    • 4
    Email author
  • David M. Muir
    • 5
  1. 1.University of PennsylvaniaPhiladelphiaUSA
  2. 2.CEPRLondonUK
  3. 3.NBERCambridgeUSA
  4. 4.University of MinnesotaMinneapolisUSA
  5. 5.University of DelawareNewarkUSA

Personalised recommendations