The Economics of Drip Pricing at the FTC

The FTC is having a conference in the economics of drip pricing:

Drip pricing is a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process. The additional charges can be mandatory charges, such as hotel resort fees, or fees for optional upgrades and add-ons. Drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions, and rental car companies.

Economists and marketing academics will be brought together to examine the theoretical motivation for drip pricing and its impact on consumers, empirical studies, and policy issues pertaining to drip pricing. The sessions will address the following questions: Why do firms engage in drip pricing? How does drip pricing affect consumer search? Where does drip pricing occur? When is drip pricing harmful? Are there efficiency justifications for the practice in some situations? Can competition prevent firms from harming consumers through drip pricing? Can consumer experience or firm reputation limit harm from drip pricing? What types of policies could lead to improved consumer decision making and under what circumstances should such policies be applied?

The workshop, which will be free and open to the public, will be held at the FTC’s Conference Center, located at 601 New Jersey Avenue, N.W., Washington, DC. A government-issued photo ID is required for entry. Pre-registration for this workshop is not necessary, but is encouraged, so that we may better plan for the event.

Here is the conference agenda: