A05
Consumer Decisions on Durable Products
Discussion Papers

Discussion Paper No. 193
October 23, 2019

The Existence and Persistence of the Pay-per-use Bias in Car Sharing Services

Author:

Dowling, Katharina (LMU Munich)
Manchanda, Puneet (University of Michigan)
Spann, Martin (LMU Munich)

Abstract:

A key benefit of using car sharing services (relative to car ownership) is that they are more cost effective. Car sharing firms offer a menu of pricing plans to make this happen. The two most common plans are flat-rate and pay-per-use pricing. However, little is known about how consumers choose among these pricing plans. In this study, we analyze consumers’ choices between pay-per-use and flat-rate pricing using data from a car sharing provider in a large European city. We show that over 40% of customers make nonoptimal pricing plan choices (i.e., they do not choose the cost minimizing plan). In contrast to previous research, we find a prevalent and time-persistent pay-per-use bias; i.e., we find little evidence that consumers “learn”. We propose three potential explanations for the existence and persistence of this bias. First, we suggest that customers underestimate their usage. Second, we propose that customers have a preference for flexibility, leading them to pay more. Finally, we show that the physical context, such as weather, increases the likelihood of a pay-per-use bias. We suggest that the pay-per-use bias may be the prevalent tariff choice bias in the Sharing Economy.

Keywords:

sharing economy; car sharing; pricing; pay-per-use bias; flat-rate bias

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Discussion Paper No. 154
May 2, 2019

An Experimental Analysis of Overconfidence in Tariff Choice

Authors:

Dowling, Katharina (LMU Munich)
Spann, Martin (LMU Munich)
Stich, Lucas (LMU Munich)

Abstract:

Digitalization has changed existing business models and enabled new ones. This development has been accompanied by the emergence of new pricing options and the possibility of applying established pricing models in new domains. Today, consumers can, for example, pay for accessing a product instead of buying it. Within such sharing services, consumers can usually choose between a flat-rate and a pay-per-use option. Prior work demonstrated that consumers' tariff choices are often systematically biased. Overconfidence was identified as one of the key drivers. Yet, prior research is non-experimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on tariff choice experimentally. We show that overconfident consumers overestimate their ability to predict their future usage, which leads them to underestimate their actual usage, and eventually leads them to choose a pay-per-use (vs. a flat-rate) option more frequently. We discuss theoretical and managerial implications.

Keywords:

overconfidence; tariff choice; pay-per-use; flat-rate; experiment

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Discussion Paper No. 147
March 11, 2019

Metric and Scale Effects in Consumer Preferences for Environmental Benefits

Author:
Pleshcheva, Vlada (Institut für Marketing Humboldt-Universität zu Berlin)
Abstract:

The present study investigates how the framing of information on the environmental impact of vehicles affects consumers’ preferences for identical improvements in carquality. In online choice experiments, the effects of two metrics (fuel consumption vs. CO2 emissions) and three scales of one metric (CO2 in kg/km vs. g/km vs. g/100km) are examined. First, from a technical perspective, fuel consumption (FC) and CO2 emissions are linearly connected by a constant factor and are thus isomorphic indescribing the environmental friendliness of a car. Second, rescaling identical informa-tion should not change consumer decisions. However, as this study demonstrates, the type of information presented to consumers significantly affects consumers’ valuation of environmental benefits from a reduction in FC or CO2. The study’s contribution lies in quantifying the differences in consumers’ preferences for two measures of the same information that have not been previously directly compared. Additionally, the differences in the framing effects are explored for diesel and gasoline vehicles. The estimation accounts for heterogeneity in the tastes, environmental attitudes and knowledge of the respondents. The insights of this study serve to guide policy makers and carmanufacturers on how to present information on car offers.

Keywords:
choice architecture; environmental impact; framing effects; vehicle choice
JEL-Classification:
D12; D90; M31; Q51
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Discussion Paper No. 141
March 8, 2019

The Moderating Effect of Fuel Prices On the Market Value of Fuel Efficiency, Driving Intensity, and Co2 Emissions

Authors:

Pleshcheva, Vlada (Institute for Marketing Humboldt-University Berlin)
Klapper, Daniel (Institute for Marketing Humboldt-University Berlin)

Abstract:

In the current paper, we quantify the effect that fuel prices have on vehicle prices' responsiveness to fuel economy. We apply a hedonic price model to the German automobile market by using data on detailed technical specifications of high-sales vehicles of three sequential model years. In the contribution to previous research, our specification enables us to distinguish between consumers' valuation of fuel economy versus their reaction to changes in fuel prices. Two sources of changes in consumers' willingness-to-pay for better fuel economy are discussed - changes in the budget for driving a car and changes in capital investments in better car quality. We also discuss the subsequent changes in the optimal driving intensity and the resulting carbon dioxide emissions. Differences in the effects are studied for various car makes of both diesel and gasoline engines.

Keywords:

co2 emissions; fuel economy; fuel prices; hedonic regression

JEL-Classification:

D12; L62; Q41; Q51

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Discussion Paper No. 140
February 27, 2019

On Factors of Consumer Heterogeneity in (Mis)Valuation of Future Energy Costs: Evidence for the German Automobile Market

Authors:
Pleshcheva, Vlada (HU Berlin)
Klapper, Daniel (HU Berlin)
Dannewald, Till (Wiesbaden Business School)
Abstract:

In this paper, we first recover the individual valuation of expected future fuel costs at the time of a car purchase and then explore how various factors relate to the recovered consumer undervaluation of fuel savings (on average, consumers' willingness-to-pay for a €1 reduction in fuel costs is below €0.20).

Keywords:
energy-efficiency paradox; hedonic discrete choice model; vehicle purchase; willingness-to-pay
JEL-Classification:
D12; D90; M31; Q51
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Discussion Paper No. 111
August 3, 2018

Inferring Attribute Non-Attendance Using Eye Tracking in Choice-Based Conjoint Analysis

Authors:

Yegoryan, Narine (Humboldt University Berlin)
Guhl, Daniel (Humboldt University Berlin)
Klapper, Daniel (Humboldt University Berlin)

Abstract:

Traditionally, the choice-based conjoint analysis relies on the assumption of rational decision makers that use all available information. However, several studies suggest that people ignore some information when making choices. In this paper, we build upon recent developments in the choice literature and employ a latent class model that simultaneously allows for attribute non-attendance (ANA) and preference heterogeneity. In addition, we relate visual attention derived from eye tracking to the probability of ANA to test, understand, and validate ANA in a marketing context. In two empirical applications, we find that a) our proposed model fits the data best, b) the majority of respondents indeed ignores some attributes, which has implications for willingness-to-pay estimates, segmentation, and targeting, and c) even though the latent class model identifies ANA well without eye tracking information, our model with visual attention helps to better understand ANA by also accounting for differences in attribute processing patterns.

Keywords:

attribute non-attendance; eye tracking; discrete choice modeling; choice-based conjoint analysis

JEL-Classification:

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Discussion Paper No. 51
October 30, 2017

Behavioral Biases in Marketing

Authors:

Guhl, Daniel (Humboldt University Berlin)
Klapper, Daniel (Humboldt University Berlin)
Massner, Katharina (LMU)
Spann, Martin (LMU)
Stich, Lucas (LMU)
Yegoryan, Narine (Humboldt University Berlin)

Abstract:

Psychology and economics (the mixture of which is known as behavioral economics) are two fundamental disciplines underlying marketing. Various marketing studies document the non-rational behavior of consumers, even though behavioral biases might not always be consistently termed or formally described. In this review, we identify empirical research that studies behavioral biases in marketing. We summarize the key findings according to three classes of deviations (i.e., non-standard preferences, non-standard beliefs, and non-standard decision-making) and the marketing mix instruments (i.e., product, price, place, and promotion). We thereby introduce marketing researchers to the theoretical foundation of and terminology used in behavioral economics. For scholars from behavioral economics, we provide ready access to the rich empirical, applied marketing literature. We conclude with important managerial implications resulting from the behavioral biases of consumers, and we present avenues for future research.

Keywords:

marketing; behavioral economics; behavioral biases; review

JEL-Classification:

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Discussion Paper No. 10
October 18, 2017

Pay What You Want as a Pricing Model for Open Access Publishing?

Authors:

Spann, Martin (University of Munich)
Stich, Lucas (University of Munich)
Schmidt, Klaus M. (University of Munich)

Abstract:

We analyze 'Pay What You Want' as a business model for Open Access publishing by discussing motives leading authors to make voluntary contributions, potential benefits for publishers and present results from a field experiment at one publisher. Data from the field experiment indicate authors' willingness to voluntarily contribute.

Keywords:

gold open access; article processing charges; customer-driven pricing; voluntary contributions; field experiment

JEL-Classification:

M31; D03; L11

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Discussion Paper No. 8
January 24, 2017

Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price?

Authors:

Krämer, Florentin (University of Munich)
Schmidt, Klaus M. (University of Munich)
Spann, Martin (University of Munich)
Stich, Lucas (University of Munich)

Abstract:

Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed costs to price discriminate without setting a reference price. Their participatory and innovative nature gives rise to promotional benefits that do not accrue to posted-price sellers. We explore the nature and effects of these benefits and compare PWYW and NYOP using controlled lab experiments. We show that PWYW is a very aggressive strategy that achieves almost full market penetration. It can be profitable if there are promotional benefits and if marginal costs are low. In contrast, NYOP can be used profitably also if marginal costs are high and if there are no such benefits. It reduces price competition and segments the market. In a second experiment, we generate promotional benefits endogenously. We show that PWYW monopolizes the follow-up market but fails to be profitable. NYOP is less successful in penetrating the market but yields much higher profits.

Keywords:

Customer-driven pricing mechanisms; pay what you want; name your own price; competitive strategies; marketing; laboratory experiment

JEL-Classification:

D03; D21; D22; D40; L11; M31

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