Overreaction to zero-price: Replication Study

What’s next?

The results of the first two studies were surprising, but at the same time very reassuring. In contrast to previous behavioral research showing that consumers overreact to zero-price products, my studies demonstrate that this is not necessarily the case. When the decisions have a real impact on people’s money and the good offered is truly beneficial to them, the reaction to the decrease in price to zero (increase in demand for a zero-price good, decrease in demand for a higher-price good) seems to be explained by people perceiving a drop from 1 Cent to zero as bigger than from 15 to 14 Cents. So maybe consumers are not as ‘irrational’ as previously thought?

If consumers do not overreact to zero-price products when they are truly beneficial to them and have a real impact on their utility, it is unlikely they will do so once those products involve non-monetary costs such as collection of personal data. There is, however, a different puzzling effect that I observed in my data – many participants (35-44%) rejected both offers – they decided to do that task without any help even if it was offered to them for free. This decision had an impact on their payments – those who decided not to use any tools earned less money than those who accepted one of my offers.

This puzzling effect triggered some further questions:

  • Are consumers exposed to free misleading offers, i.e., offers that are advertised as free but impose non-monetary costs on consumers?
  • How prevalent are such offers? Are they easy to distinguish from truly free beneficial offers?
  • Are consumers suspicious about free offers? Does this mistrust lead consumers to reject even truly beneficial free deals?

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