Purchase Decisions with Non-Linear Pricing Options Under Risk - Experimental Evidence

33 Pages Posted: 12 Sep 2007

See all articles by Martin Beckenkamp

Martin Beckenkamp

Max Planck Institute for Research on Collective Goods

Frank P. Maier-Rigaud

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods; ABC economics

Date Written: August 2007

Abstract

We experimentally investigate purchase decisions with linear and non-linear pricing under risk. The experiment is based on a single period stochastic inventory problem with endogenous cost. It extends classic binary lottery experiments to test standard decision theoretic predictions concerning purchasing behavior in a rebate and a discount scheme. We investigate to what extent customers continue to purchase under two mathematically isomorph formats of nonlinear schemes even if switching to a linear pricing scheme is optimal. Our results indicate that rebate and discount schemes exert a significant attraction on customers. Given the increased role of non-linear pricing schemes, systematic deviations from optimal behaviour are an important element in the design of such schemes and may raise consumer protection and competition questions. We discuss how our results can be explained by decision heuristics.

Keywords: rebate, discount, linear price, newsvendor problem, stochastic inventory problem, lotteries, risk preferences

JEL Classification: C91, D81, D40, L42

Suggested Citation

Beckenkamp, Martin and Maier-Rigaud, Frank P. and Maier-Rigaud, Frank P., Purchase Decisions with Non-Linear Pricing Options Under Risk - Experimental Evidence (August 2007). MPI Collective Goods Preprint Paper No. 2007/10, Available at SSRN: https://ssrn.com/abstract=1014003 or http://dx.doi.org/10.2139/ssrn.1014003

Martin Beckenkamp (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, DE
Germany

Frank P. Maier-Rigaud

ABC economics ( email )

Berlin, 10115
Germany
10115 (Fax)

HOME PAGE: http://www.ABCecon.com

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods ( email )

Socle de la Grande Arche
1 Parvis de la Défense
Paris, La Défense Cedex, 92044
France

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