Effects of price uncertainty on consumer purchase budget and price thresholds

Abstract

This article examines how uncertainty about prices affects: (1) the budget consumers allocate for purchasing a product and (2) consumer price thresholds (i.e., the prices that are considered “too high” or a “good deal”). In an experimental setting, the purchase budget as well as the absolute values of both thresholds for uncertain subjects were higher than those for certain subjects. Moreover, a relatively large decline from the budget was needed before a price was considered a “good deal,” whereas a relatively small increase from the budget was sufficient for a price to be considered “too high.” Price uncertainty widened the difference between the upper (i.e., “too high”) price threshold and the budget, making uncertain subjects more tolerant to prices exceeding the budget than certain subjects. However, price uncertainty did not have a significant effect on the difference between the budget and the lower (i.e., “good deal”) price threshold.