Complex Pricing and Consumer Behavior: Evidence from a Lab Experiment

Abstract: Multi-product firms are increasingly engaged in the targeting of consumers using complex pricing models. Bundling is one such pricing strategy that theory suggests should increase firm profits. However, many of these models fail to account for how real consumers may struggle to fully optimize when faced with such complex price menus. We conduct a lab experiment to explore how consumers may fall short of optimal decision-making under increasingly complex pricing menus. We then randomly introduce additional cognitive load to explore how external stress may exacerbate the effects of complex pricing. Finally, we show how firms might account for these results in choosing a more streamlined pricing strategy.