CELS/USC Virtual Antitrust Law Workshop Series: “Measuring and Mitigating Drip Pricing Overcharge: Evidence from an Online Marketplace Experiment with a Digital Shopping Assistant”

Speakers: Professor Rory Van Loo (Boston University)

Title: “Measuring and Mitigating Drip Pricing Overcharge: Evidence from an Online Marketplace Experiment with a Digital Shopping Assistant” 

Abstract: We study how much drip pricing (hidden mandatory fees revealed after consumers have begun the buying process) raises prices paid for identical goods and whether an automated shopping assistant mitigates the effect. In a randomized online marketplace experiment (n = 1608) with real purchases of gift cards funded by a $15 endowment, we vary the initial and final presentation of the gift cards’ prices across 33 levels and randomly assign participants to an automated assistant that flags a lower-price identical option and links to it. Relative to transparent pricing, drip pricing increases the average price paid by up to a plateau of about 10% (maximum 13%) for the same gift cards. The assistant reduces the incidence of overpayment by 63% and substantially lowers dollars overpaid, enough to flip the seller’s profit-maximizing strategy from drip pricing to transparent pricing. Participants exposed to drip pricing rate the platform as less trustworthy, even though it is the third-party seller that determines the fees. The digital assistant partially exacerbates this perception. Our findings inform policy responses to drip pricing and the value proposition of AI shopping tools.

To register your interest for this event please contact Professor Oke Odudu (oo201@cam.ac.uk).