HINTERHUBER - VIOLATIONS OF RATIONAL CHOICE IN PRICING

Question 1

CUSTOMER PERSPECTIVE

Answer 1

• price quality effect -> high price=high quality
• irrelevant attributes -> Red Bull/Taurin -> meaningless product attributes increase attractiveness (in B2C)
• framing -> loss aversion, prospect theory -> gain instead of loss
• price precision effect -> precise price perceived as smaller than round prices
• 9-Endings -> underestimation of price ending in 9
• sale signs -> mere presence of a sign increases demand
• discount presentation -> % for low price products, absolute value for high price products
• color, cents, font size ->can have an impact

Question 2

FIRM PERSPECTIVE

Answer 2

• conformity bias ->follow market/competitor actions
• competition neglect -> overconfidence, not anticipating competitive response
• competitor obsession -> pricing below optimal levels to hurt competition instead of maximizing own profits
• simple heuristics -> no scientific predictive power
• underpricing new products -> tendency to overestimate price sensitivity of customers