Drip pricing and market competition --- experimental evidence

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Drip pricing refers to the strategy by firms to partition the price into several components and present these price components to consumers in a sequential order. In recent years, the importance and application of this pricing technique has increased, in particular in Internet commerce.The aim of this project is to analyse the market behaviour regarding drip pricing where, in contrast to existing research, the focus lies on a market perspective and the implications for all market participants (firms and consumers). We propose an experimental approach to study the effects of market factors in a controlled environment. In those experiments, both the firm side as well as the demand side will be represented by laboratory subjects.The project comprises two sub-projects. In sub-project I, we start by examining how drip pricing affects market participants. We will also analyse the effects of the intensity of market competition on the use of drip pricing. For this purpose, laboratory experiments in which firms may employ different pricing techniques are employed.In sub-project II, the focus lies on the implications for competition and consumer policy. We analyse whether and, if so, how market authorities should intervene and restrict the use of drip pricing. For this purpose, we also propose an experimental setup to simulate the effects of different policy restrictions (regarding the number and the amount of price components) on firm behaviour and the use of drip pricing.