Lecture 8 Pricing

Question 1

bargaining settings

Answer 1

when you can change the price, don’t have to take the first offer

Question 2

first offers in bargaining

Answer 2

1. first offer extremity
2. precision
3. ranges
4. rationales
5. transparancy
6. framing

Question 3

first offer extremity

Answer 3

idea that first offer in settings where bargaining is possible has a big influence on the final price.
This occurs in a lot of literature, lot of evidence.

Question 4

first mover advantage

Answer 4

person that makes first offer ends up with higher size of pie in bargaining/negotiating setting.

Question 5

anchoring effect

Answer 5

idea that numbers have a strong effect on our judgement

first mover advantage is driven by this

Question 6

study on anchoring effect

Answer 6

asked people simple questions with random number (higher or lower than 10/65%).
people did not adjust enough from the given number.
we also do this in negotiation; counteroffer is not adjusted sufficiently

Question 7

meta-analysis on first offer effects

Answer 7

• correlation between first offer with negotiation outcome (r = .60)
• sequence: first mover recieved more favorable outcomes than second movers
• magnitude: extreme first offers led to higher outcomes than moderate ones

conclusion: first movers commonly claim more value and the first offer functions as anchor.

Question 8

what lessens anchoring effect

Answer 8

experts, having relevant useful information you can use to make a decision?
studied with real estate.
-> both students and experts are affected by anchoring effects.
-> amateurs realise they are affected, experts think they aren’t.

Question 9

LOC and sensitivity to first prices

Locus of control

Answer 9

• People with external LOC are influenced by first offer
• people with internal LOC are less (not) influenced by first offer

Study had participants fill in LOC survey and do a negotiation task.

Question 10

first mover disadvantages?

Answer 10

• When information assymetry is extreme
• When revealing too much information
• When the first offer is too extreme resulting in impasse

Question 11

Price precision

Answer 11

number of values that are not zero at the end of the price

Question 12

difference in price precision study?

Answer 12

had people estimate a price based on given prices varying in roundness.
- when anchor is round, adjustment away from anchor is high
- when it is precise, adjustment is much smaller.

Question 13

underlying mechanisms of anchor adjustment

from the study on price precision

Answer 13

• scale granularity (cognitive) = because the scale has more points you adjust less.
• attribution of competence (social) = precise price makes it looks like the person that set it really thought about it

Question 14

is there such a thing as too much precision?

study

Answer 14

field study with experts and amateurs that had to give counteroffers and willingness to pay based on different levels of precision.
- amateurs: higher precision leads to even less adjustment
- experts: there is a sweet spot

Question 15

Why do experts have a precision sweet spot

Answer 15

because for experts the attribution of competence disappears. too much precision no longer reflects confidence, but a lack of it.

Question 16

when should precise prices be avoided

Answer 16

• when dealing with experts
• sellers’s market

Question 17

sellers’s market

Answer 17

market where there are more buyers than sellers. because of this buyers bid above the asking price.

Question 18

Funda analysis by lecturer?

Answer 18

• number of zero’s predicts actual selling price (positive correlation)
• effect remained when controlled for other things
• also occured when properties sold below the asking price where put in.

every additional zero you increase selling price with .6%

Question 19

what is the idea behind prices that end with .99

Answer 19

that we want low prices and read from left to right. we pay less attention to the end versus the beginning.
especially effective when changing the number of digits.

Question 20

paper on .99 prices outcomes?

Answer 20

price image
- prices that end with .99 are percieved as lower
- percieved as on sale

quality
- prices that end with .99 make the item quality be percieved as lower than average
- make the quality of items in the store be perceived as below average
- make the store seem less classy

so cheaper but lower quality percieved

Question 21

Pay what you want?

Answer 21

situaties in which you can decide yourself what you pay.
not common

Question 22

what determines how much we pay

in a pay what you want context

Answer 22

• identity: self-signaling
• valuation
• image
• social norms
• social preferences
• mindset

Question 23

identity: self-signaling

Answer 23

prices can serve as self-signaling devices
- a bad person pays less/little
- a good person pays a lot/enough

it shapes both our private and public image concerns

Question 24

disney study in self-signaling method

Answer 24

people could pay what they wanted for picture under different consequences
- CSR: fixed 12,5 or 12,5 and 50% goes to charity
- SSR: PWYW or PWYW and 50% goes to charity

Question 25

results of disney PWYW study

Answer 25

• at fixed prices the profits are low and only small increase when charity is added
• In PWYW without charity people pay little, but with charity profit strongly increases
• percentage of buying decreases when charity is added in PWYW because the cost of sending a bad signal is high and people with low value for the picture then would rather not buy it at all.

Question 26

CSR: corporate social responsibility

Answer 26

• customers might assume the company has ulterior motives
• CSR purchases are a weak signal about the buyers intentions

Question 27

SSR: shared social responsibility

Answer 27

• SSR exposes the company to financial risk; unlikely to have ulterior motives
• PWYW enhances identification with the cause. money spent directly reflects self-identification

allows customers to directly express social welfare concerns through the purchasing of material goods