The price does not include additional taxes, fees, and surcharges: A review of research on partitioned pricing

Abstract

In the past two decades, pricing research has paid increasing attention to instances where a product's price is divided into a base price and one or more mandatory surcharges, a practice termed partitioned pricing. Recently, partitioned pricing strategies in the marketplace have become more pervasive and complex, raising concerns that consumers do not always fully attend to or process all price information, and underestimate total prices, which in turn influences their purchasing behavior. Thus, understanding how partitioned prices affect consumers is of increasing interest to consumer researchers, public policy makers, and marketing managers. This paper reviews and organizes the academic literature on partitioned pricing and proposes an agenda for future research. We focus on the psychological processes underlying partitioned pricing, to help these three constituencies understand how partitioned pricing works, the mechanisms by which it exerts its impact, and the appropriate areas where the practice may need regulation to protect consumers.

Intrinsic and extrinsic effects on behavioral tax biases in risky investment decisions

“…The most plausible explanation for these observations is that subjects increasingly tend to use a decision heuristic in these cases (see, for example, Greenleaf et al, 2015). Although we did not test this relationship explicitly, we are able to provide evidence that the use of decision heuristics can explain the observed tax 14 We only have one observation for Δ valence, Δ arousal, and Δ cognition per participant, but 10 observations for the Perception Effect.…”

“…For example, de Bartolome (1995), Rupert and Wright (1998), Rupert et al (2003), Boylan and Frischmann (2006), Blaufus andOrtlieb (2009), andAckermann et al (2013) argue that increasing tax complexity lowers the quality of individual investment decisions and, therefore, increases the likelihood that subject's decision behavior is biased. The main reason for this relationship is that a more complex decision task makes subjects more likely to rely on heuristics or on a rule of thumb (see, e.g., Greenleaf et al, 2015). If we understand tax complexity as a process that imposes cognitive costs on individuals in the case of taxation (e.g., because of complex calculations necessary to receive net values), utility gained from a risky asset is (c.p.)…”

“…Rupert and Wright (1998), Tyran (2005, 2011), Chetty et al (2009), Finkelstein (2009), and Fochmann and Weimann (2013 find, for example, that taxpayers underestimate their tax burden in the case of low tax salience. This effect is strongly related to the effect of partitioned pricing (for a literature review, see Greenleaf et al, 2015). The idea behind partitioned pricing is that purchasing behavior depends on whether an all-inclusive price or a partitioned price (a base price and one or more mandatory surcharges-such as shipping and handling charges or taxes) is presented to the customer.…”

“…In other words, individuals tend to overestimate a good's value because they do not take all costs into account. Greenleaf et al (2015) argue that one explanation for this effect is that individuals use heuristics such as anchoring (where the anchor is the base price) and "then insufficiently adjust upward in response to the additional surcharge information, resulting in an underestimated total price" (p. 12).…”

Customer Differentiation with Shipping as an Ancillary Service? Free Service, Prioritization, and Strategic Delay

“…They find that it is sometimes better to charge separately for shipping because customers perceive (and recall) a lower total price (Morwitz, Greenleaf, & Johnson, 1998), but at other times, e.g., for books purchases, customers are much more sensitive to shipping prices than the price of product itself that makes it better to incorporate the shipping charge into the base price (Hamilton, Srivastava, & Abraham, 2010). For a review of research on price partitioning, we refer the reader to Morwitz, Greenleaf, Shalev, and Johnson (2016). Gümüş, Li, Oh, and Ray (2013) characterize the market equilibrium under competition among retailers who either charge shipping prices or offer free-shipping.…”