Consumer Decisions in Response to Price Increases

Previous research has found that consumers anchor their purchase decisions on the quantity limit in price discounts. However, this paper identifies cases in which consumers purchase fewer units of a product when more (vs. fewer) units of the product are offered at a lower price. In other words, consumers buy more when the average unit price is higher. I find this pattern across a variety of products in both lab settings and a field experiment. Furthermore, this effect extends beyond discounts with quantity limits to more general price-increases. This paper provides theoretical as well as practical insights for understanding consumer behavior. Theoretically, this work advances our knowledge of how consumers react to non-linear pricing and numeric cues in price promotions. I demonstrate that consumers respond to external numerical cues (e.g., anchors, reference points) only if those values are perceived to be acceptable as a purchase quantity. This work also contributes to our understanding on the effect of transaction utility in consumer purchase decisions. Practically, my work provides insights into the effectiveness of pricing and promotion strategies and proposes a new method for nudging consumers to reduce unhealthy food or energy consumption.