On Point Predictions and Reference Dependence In Behavior-Based Pricing Experiments

Earlier studies have shown that comparative static results from two-period behavior-based pricing models hold in laboratory experiments, while point predictions do not. We report findings in conformity with these point predictions throughout a uniform pricing benchmark, a replication and a follow-up experiment, in which we consider the second period disjoint from the first period. Reference dependence towards first-period prices seems to shift participants’ second-period pricing behavior upwards. A post hoc analysis shows that considering myopic consumers instead of strategic consumers explains a downward shift of first-period prices and rationalizes the findings of prior studies. Volatile price levels affect price-based welfare measures such as sellers’ profits and customers’ total costs. We show that transport costs serve as a robust welfare measure, alleviating the impact of distorted prices. These findings are relevant for the design of experiments and when assessing the efficiency of experimental markets