Price Framing

Price Framing

The same total, presented in different parts, is judged differently. The presentation is a competitive weapon rather than an accident of layout.

What it is

Base price plus surcharge. Per kilo against per 100g. Monthly against annual. Each is the same money arranged differently, and the arrangement changes how easy the comparison is.

Chioveanu and Zhou give the equilibrium account: identical sellers competing on both prices and price frames, where frame choices affect how comparable offers are and can cause confusion and lower price sensitivity.

In effect

In their model, firms randomise their frame choices, obfuscating comparison and sustaining positive profits. Nobody has to decide to mislead for this to happen; it is what competing on presentation looks like.

The result most worth carrying is counterintuitive. An increase in the number of competitors can induce firms to rely more on frame complexity, which may boost industry profits and lower consumer surplus.

A busier category is not necessarily a clearer one.

What it does not say

It does not say that split prices are always deceptive. A delivery charge stated separately is information, and bundling it into the headline would be a different kind of opacity.

The originator confidence here is medium. The phenomenon long predates this paper; what Chioveanu and Zhou contribute is the account of why it survives competition.

Sources

  1. Chioveanu, I., & Zhou, J. (2013). Price competition with consumer confusion. Management Science, 59(11), 2450-2469. doi:10.1287/mnsc.2013.1716
  2. Gabaix, X., & Laibson, D. (2006). doi:10.1162/qjec.2006.121.2.505
  3. Where this came from
  4. No book in this library is the source of this concept. It entered the vault from The £3.95 You Spent to Save £3.95, built from primary sources rather than from a book.