Social Norms and the Price of Zero

The standard economic model assumes that demand is weakly decreasing in price. While empirical evidence shows that this is true for most price levels, it might not hold for the price of zero, where social norms are not entirely compatible with the self-maximizing economic agent. A set of experiments shows that switching from a low price to a price of zero has two effects on behavior: First, in accordance with the economic theory, more people demand the product. Second, whereas in the low price case some individuals demand high quantities of the product, in the zero price case most people take only one unit of the product. As a result, lowering the price to zero may lead to a net decrease in the total amount demanded in the market. We further show that polite priming results in higher demand than ethical priming in both zero price and 1¢ conditions.

Duke Scholars

Author Dan Ariely Fuqua School of Business