Reference price effects in vacation rental markets
(A2020-59390)

AUTHORS

Shrabastee Banerjee, Boston University; Anita Rao, University of Chicago; Giorgos Zervas, Boston University

KEYWORDS

Pricing; Experiment; MachineLearning

ABSTRACT

Consumers have been shown to respond to prices that are advertised by firms, but irrelevant to the actual purchase price. However, in most applications, the advertised price is higher than the focal price, and is framed as a discount. Our focus is on travel websites, who often advertise a “Starting from” price for each property. Using a combination of data sets and methods, we investigate whether consumers respond to these “From” prices. Our experimental results (obtained from Holidu.com) indicate that, while higher From price might lead to lower clickouts, it can attract more valuable customers conditional on purchase. To complement this experiment, our observational results (obtained from Airbnb.com) find that From prices are positively correlated with booking probability and occupancy rate. Taken together, our findings lend some evidence to the fact that consumers are guided by fairness perceptions, and are deterred if offered a very low initial From price, but a very high eventual price.