How social comparison influences reference price formation in a service context

• Published in: Journal of economic psychology 2014-12, Vol.45, p.168-180
• Main Authors: Viglia, Giampaolo, Abrate, Graziano
• Format: Article
• Language: English
• Subjects: Applied psychology; Biological and medical sciences; Comparative analysis; Consumer behavior; Dynamic pricing; Economic psychology; Experimental methods; Fundamental and applied biological sciences. Psychology; Information processing; Miscellaneous; Prelec weighting function; Price formation; Price theory; Price variance; Prices; Psychology. Psychoanalysis. Psychiatry; Psychology. Psychophysiology; Reference price; Social change; Social comparison; Studies
• ISSN: 0167-4870; 1872-7719
• DOI: 10.1016/j.joep.2014.09.003

•We elicit reference price formation from sequences of past prices.•Past prices arise from two sources: anonymous internet search or social comparison.•A Prelec weighting function model is able to predict the reference price.•If the source of information is anonymous the reference is close to the average price.•Social comparison modifies the way consumers weight past price information. What is the influence on reference price when the source of price information is anonymous versus social? This article investigates the formation of reference prices given an observed sequence of past prices in a service context. An experimental study suggests that, considering the same price information, if the source is social (i.e., the prices paid by colleagues), then consumers want to pay less. More specifically, social comparison changes the way individuals weigh information, attributing more importance to the lowest historical prices and to the range in price variations.