OFT research highlights that price frames cause consumer detriment

On 28 May 2010 the Office of Fair Trading published a report that analyses whether or not the way prices are presented or “framed” to consumers has effect on consumer decision making and consumer welfare.

To answer this question, a controlled economic experiment was conducted with 166 participants. The experiments tested the implications of five price frames with the baseline treatment (in which consumers see straight per-unit prices). The five price frames were:

  • “drip pricing” - where optional or compulsory price increments are added during the buying process
  • “reference prices” - such as “was 100€, now 60€”
  • “free” products offered as part of a package (buy ten, get one free)
  • multiple unit price promotions (such as three for two)
  • time-limited pricing

The experiment has several implications:

Price frames do change consumer behaviour. This is in contrast to what orthodox economic theory on consumer behaviour would predict. Change in behaviour is for the worse. Price frames do cause consumer detriment. The worst culprits are drip pricing and time-limited offers.

The authors of the study therefore conclude that policymakers may be particularly worried about drip pricing in markets for goods that are not purchased (particularly) frequently and time-limited offers in markets for goods that are purchased with high frequency.


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Source: OFT and The Economist