Lifting the Veil: The Benefits of Cost Transparency

Abstract

Firms do not typically disclose information on their costs to produce a good to consumers.
However, we provide evidence of when and why doing so can increase consumers’ purchase interest. Specifically, building on the psychology of disclosure and trust, we posit that cost transparency, insofar as it represents an act of sensitive disclosure, fosters trust. In turn, this heightened trust enhances consumers’ willingness to purchase from that firm. In support of this account, we present six studies, conducted in the field and in the lab. A pre-registered field experiment indicated that diners were 21.1% more likely to buy a bowl of chicken noodle soup when a sign revealing its ingredients also included the cafeteria’s costs to make it. Five subsequent online experiments replicated and extended this basic effect, providing evidence of when and why it occurs. Taken together, these studies imply that the proactive revelation of costs can improve a firm’s bottom line.

Keywords: cost transparency, pricing, consumer behavior, field experiments