Competition Policy Center

The recent theoretical literature suggests that consumer myopia may lead firms to profitably suppress or shroud some attributes of the price. Empirical and experimental data also suggest that sellers gain by transferring a larger fraction of the price to the shrouded attributes. However, alternative theories, including mental accounting, could also explain these framing effects. Using field experiments, we show that the impact of this price framing on revenue vanishes when we explicitly reveal the prices of different attributes, while the framing effect persists only when we shroud some price attributes. Then, using data from a natural experiment that occurred on eBay, we find that when the price of a secondary attribute such as the shipping fee is prominently displayed, the framing effect also disappears. Moreover, average revenues for sellers seem to have increased after this institutional change.