Discounts and Consumer Search Behavior: The Role of Framing

Abstract

We implement a simple two-shop search model in the laboratory with the aim of testing if consumers behave differently in equivalent situations, where prices are displayed either as net prices or as gross prices with discounts. We compare search behavior in base treatments (where both shops post net prices without discounts) to discount treatments (where either the first shop or the second shop posts gross prices with separate discount others). We find that subjects search less in both treatments with discount frames irrespective where the discount is offered. We argue that this bias results from subjects basing their decisions on salient characteristics of the situation rather than on objective price distributions.

Keywords: Consumer Search, Price Framing, Price Discounts, Competition

JEL Classification: D82, D83, C91, L13