ECON 106T Chapter 2: Prices Adjustment
Document Summary
Airline pricing: airline prices used to be very complex: price depends on whether single/return, on how match flights etc, increasingly sell single tickets (e. g. virgin. Complex prices: may be optimal form of price discrimination, makes price comparison hard, and softens competition. But: confuses customers, people may think differential pricing is unfair. Anchoring: people overweight first piece of information. Status quo bias: endowment effect, prospect theory. Context effects: choose middle option (compromise effect, choices affected by dominated alternatives (attraction effect) Mental accounting: people subdivide expenditures (e. g. insurance on computer). Don"t overwhelm consumers (choice overload: people more likely to buy nothing. Zero prices are commonplace: email accounts, internet hotspots, online newspapers. How earn money: advertising (e. g. gmail, selling complementary goods (e. g. support with sun"s mysql) Advantages of zero price (over small prices: avoid customers thinking about whether to use product, no transactions costs (billing, usernames, passwords, create environment of experimentation, maintain privacy.
