The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior

This paper presents results from an experiment on the effects of retail-price recommen-dations (RPRs) on consumer and retailer behavior. Despite their non-binding nature, RPRs may influence consumers ’ willingness to pay by setting a reference point. Loss averse consumers will then be reluctant to pay a price higher than the recommended one. Furthermore, at a given price level consumers will demand a larger quantity the higher the RPR is. We find evidence for both effects. They are stronger when the price recom-mendation contains information about the value of the product to the consumer instead of providing an uncorrelated anchor only. Retailers in this study react to RPRs in a similar way as consumers do, but they do not anticipate consumers ’ behavior well