Reference Price Effects in Search Aggregators

How do consumers respond to "From" prices advertised by firms that differ from the actual purchase price to be paid? While a low “From” price is likely to draw consumers in, a high one is likely to be closer to the true price thus reflecting a more accurate estimate. It is not clear how the accuracy of such floor price estimates relative to the true price might affect downstream outcomes. We thus conduct pre-registered field experiments on a travel aggregator (Holidu.com) to investigate how consumers respond when floor prices are raised. Contrary to the sticker-shock theory wherein consumers would be deterred if offered a low initial price estimate and a higher price further down the purchase funnel, we see that price obfuscation in the form of less accurate upfront prices can lead to more customer engagement. Our results indicate that raising floor prices leads to decreased engagement (as measured by listing clicks, number of searches, and time spent on the website), and directionally negative effects on booking related outcomes. These effects occur despite higher floor prices providing users with an estimate closer to actual prices on average. Overall, our results have implications for platform design and regulation by demonstrating the tension between customer engagement and providing accurate price estimates upfront