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Maria Ana Vitorino of the Carlson School will present "Price Dripping When Consumers Have Limited Foresight: Evidence from Driving School Fees."
Maria Ana Vitorino of the Carlson School will present “Drip Pricing When Consumers Have Limited Foresight: Evidence from Driving School Fees.”
She investigated the add-on pricing behavior of firms in the Portuguese market for driving instruction. She developed a framework where consumers purchase a base and, with some probability, an add-on product from the same firm, but are not always aware of the possible need for the add-on product. She shows that a typical loss-leader pricing strategy emerges in horizontally differentiated markets whereby markups on the base product are artificially lowered, while firms price the add-on at monopoly levels.
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