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Purchase Decisions with Non-linear Pricing Options under Risk – Experimental Evidence

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Maier-Rigaud,  Frank P.
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Beckenkamp,  Martin
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Citation

Maier-Rigaud, F. P., & Beckenkamp, M. (2007). Purchase Decisions with Non-linear Pricing Options under Risk – Experimental Evidence.


Cite as: http://hdl.handle.net/11858/00-001M-0000-0028-6F3C-1
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>