When Shrouding Prices Signals Transparency: A Preference for Costly Disclosures

Abstract

Consumers can prefer a price disclosure format that can cost them. Across a variety of products, we find that many consumers prefer partitioned price disclosures (i.e., separating charges into multiple line items without totals) to consolidated disclosures (i.e., those displaying the total price but not detailed itemized prices). This preference persists even in cases when partitioned disclosures lead them to choose financially dominated options (higher priced but not higher quality). Inattention and overgeneralized beliefs that are not always accurate drive this preference. Consumers who prefer partitioned disclosures tend to misremember the presence of total prices or remain confident that they have identified lower-priced options even when they have not. In addition, many consumers who prefer partitioned disclosures believe it will lead them to select lower-priced options and that partitioning signals transparency. Beliefs that partitioning signals transparency persist even when participants view disclosures in a simulated market that were selected by yoked “sellers,” who tended to report a motive to obfuscate total prices when they selected partitioned disclosures. While preferring partitioned disclosures (without totals) may not reflect a general mistake, these results suggest that the preference is exploitable. Firms can use partitioning to shroud total prices while signaling transparency and trustworthiness.

Keywords: Price comparison, price partitioning, complexity, overconfidence, transparency