Price Salience and Product Choice

We study the effect of price salience on product choice along two dimensions: whether a good is purchased and, conditional on purchase, the kind of good purchased. Consistent with our theoretical predictions, we find that making the full purchase price salient to consumers reduces both the quality and quantity of goods purchased. The effect of salience on quality is comparable in size to the effect on quantity. We estimate a structural behavioral model of product choice that allows us to quantify how much consumers misperceive true prices under price shrouding, and to evaluate the welfare loss from quality and quantity distortions due to price misperceptions. Date: Jan 20, 2015. Very preliminary, comments especially welcome. Blake: eBay Research Labs; [email protected]. Coey: eBay Research Labs; [email protected]. Sweeney: eBay Research Labs; [email protected]. Tadelis: eBay Research Labs; [email protected]. 1 2 BLAKE, COEY, SWEENEY, AND TADELIS