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Can Consumers Learn Price Dispersion? Evidence for Dispersion Spillover Across Categories

Quentin André,Nicholas Reinholtz,B. D. Langhe

Published 2021 in Journal of Consumer Research

ABSTRACT

Price knowledge is a key antecedent of many consumer judgments and decisions. This paper examines consumers’ ability to form accurate beliefs about the minimum, the maximum, and the overall variability of prices for multiple product categories. Eight experiments provide evidence for a novel phenomenon we call dispersion spillover: Consumers tend to overestimate price dispersion in a category after encountering another category in which prices are more dispersed (versus equally or less dispersed). Our experiments show that this dispersion spillover is consequential: It influences the likelihood that consumers will search for (and find) better prices and offers, and how much consumers bid in auctions. Finally, we disentangle two cognitive processes that might underlie dispersion spillover. Our results suggest that judgments of dispersion are not only based on specific prices stored in memory, and that dispersion spillover does not simply reflect the inappropriate activation of prices from other categories. Instead, it appears that consumers also form “intuitive statistics” of dispersion: Summary representations that encode the dispersion of prices in the environment, but that are insufficiently category-specific. (174 words).

PUBLICATION RECORD

  • Publication year

    2021

  • Venue

    Journal of Consumer Research

  • Publication date

    2021-05-03

  • Fields of study

    Economics, Environmental Science

  • Identifiers
    DOI 10.1093/JCR/UCAB030
  • External record

    Open on Semantic Scholar

  • Source metadata

    Semantic Scholar

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