Marketing Letters

, Volume 12, Issue 1, pp 5–12 | Cite as

Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay

  • Drazen Prelec
  • Duncan Simester

Abstract

In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large (up to 100%) and it appears unlikely that it arises due solely to liquidity constraints. In addition to demonstrating the effect, we provide a methodology for detecting it, and our findings suggest a source of variance to test alternative explanations.

credit cards overspending mental accounting 

References

  1. Ausubel, Lawrence M. (1991). “The Failure of Competition in the Credit Card Market,” American Economic Review 81, 50–81.Google Scholar
  2. Becker, Gary M., Morris H. DeGroot, and Marschak, Jacob. (1964). “Measuring Utility by a Single-response Sequential Method,” Behavioral Science 9, 226–232.Google Scholar
  3. Feinberg, Richard A. (1986). “Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation,” Journal of Consumer Research 12, 384–356.Google Scholar
  4. Hirschman, Elizabeth C. (1979). “Differences in Consumer Purchase Behavior by Credit Card Payment System,” Journal of Consumer Research 6, 58–66.Google Scholar
  5. Soman, Dilip. (1999). Effects of Payment Mechanism on Spending Behavior: The Illusion of Liquidity. Working Paper, Hong Kong University of Science and Technology, Hong Kong.Google Scholar
  6. Vickrey, William. (1961). “Counterspeculation, Auctions, and Competitive Sealed Tenders,” Journal of Finance 16, 8–37.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Drazen Prelec
    • 1
  • Duncan Simester
    • 1
  1. 1.Sloan School of ManagementMITCambridge

Personalised recommendations