hide
Free keywords:
C91, D81, D40, L42
rebate, discount, linear price, newsvendor problem, stochastic inventory problem, lotteries, risk preferences
Abstract:
<p>We experimentally investigate purchase decisions with linear and nonlinear pricing under risk. The ex-periment 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 non-linear schemes even if switching to a linear pricing scheme is optimal. Our results indicate that rebate and discount schemes exert a significant attraction on custom-ers. 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 competi-tion questions. We discuss how our results can be explained by decision heuristics.</p>
