1 TRANSACTION UTILITY THEORY AND THE FRAMING OF MULTIPART PRICING OF INFORMATION GOODS

Abstract: In this paper we investigate how the framing of multipart pricing schemes impact consumer behavior in the purchase of bundles of information goods. Transaction utility theory suggests that customized bundles with identical composition and cost may yield different transactional utilities for the same consumer depending on how the pricing is framed. We show that a consumer’s perception of the “merits of the deal ” for an initial minimum bundle purchase can significantly impact probability of sale and bundle size. Specifically, we find that when consumers perceive higher initial transaction utility they are more likely to make purchase. However, for purchasing consumers lower perceived initial transaction utility correlates with larger bundle sizes. The results are derived empirically from a natural experiment of custom music CD sales. The results of this research suggest that sellers can effectively adjust the characteristics of multipart pricing schemes influence purchase decisions with regards to custom information good bundle creation