Price Contrasts in the Wild

Abstract

Existing literature offers conflicting hypotheses regarding the effects of encountering extremely high prices. While one possibility is that extreme-priced alternatives are beneficial to include, since they make more moderately-priced alternatives more attractive and improve the brand quality image, evidence from price contrasts in a real-world online platform and a controlled experiment reveal the opposite – a reduction in the probability of a purchase. This effect was stronger in settings where customers experienced heightened uncertainty about the alternatives, as well as among first-time buyers. Astonishingly, these effects persisted for years after encountering an extreme price. We propose that extreme prices influence customers by undermining the price-quality relationship, thereby casting doubt on how closely the platform monitors its own offerings and more broadly whether the platform can be relied upon to understand their customers. These findings elucidate a novel context effect with important practical implications for marketers, choice architects, and user interface designers.

Keywords: Extreme Prices, Contrast Effect, Uncertainty, Trust, Field Data, Context Effects