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Company I work at provides software services. After customers sign up, they then can go and order different combinations of services and consume them.

We do not expose prices within the flow of them ordering services, however we do provide detailed bills to them outlining costs as well as make all prices available on the separate documentation side that we link to.

Personally I believe it is a bit strange that we do not show prices when they order those services (even though they are just a few a clicks away). My theory is that once we will start showing those prices, it will increase customers trust (because we are transparent) and satisfaction (because it will help them avoid surprises in the bill).

I'm wondering if there is any research on the subject of price transparency and its effects that can help prove or disprove my assumptions.

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  • $\begingroup$ One must also consider the antithetical effect that price salience has on purchase decisions. It might be the case that people are more likely to tolerate a product's price ex-post than they are ex-ante. There is a robust literature on the effect of salience on elasticities and prices (for example, Finklestien's tax salience paper). This definitely doesn't settle the matter but it does inform whatever answer you ultimately accept. $\endgroup$ – 123 Mar 21 '17 at 2:35
  • $\begingroup$ @123 Perhaps add a link to Finkelstein (spelled this way) and then post as answer? $\endgroup$ – Giskard Mar 21 '17 at 7:35
  • $\begingroup$ @Densep - I think my input is too narrow to constitute an actual answer. I may do a quick lit. review sometime this week (I'm curious myself about price salience/profits etc.) and flesh out my comment. Here's a link to her paper: economics.mit.edu/files/7878 $\endgroup$ – 123 Mar 21 '17 at 12:56
  • $\begingroup$ @123 thank you for sharing this. TIL of a new term: price salience :) Will do more research on that and post links here for whatever I'll find. $\endgroup$ – Maxim Mar 21 '17 at 16:37
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I will expand this into an answer since I've had a chance to look at a bit more of the literature on price salience, which I consider to the primary consideration here. That being said, I think there is something to say about the fact that the company might do away with a pricing policy that some subset of potential customers feels is deceptive. This will obviously lead to a more positive perception of the company (from these customer types). Whether or not this positive increase can offset the impact of increased price salience is an open question.

My original comment:

One must also consider the antithetical effect that price salience has on purchase decisions. It might be the case that people are more likely to tolerate a product's price ex-post than they are ex-ante. There is a robust literature on the effect of salience on elasticities and prices (for example, Finkelstien's tax salience paper). This definitely doesn't settle the matter but it does inform whatever answer you ultimately accept.

Her paper: economics.mit.edu/files/7878

Other papers to read:

Bordalo and colleagues: http://scholar.harvard.edu/files/shleifer/files/pdf_1.pdf This paper looks at consumer choice and characteristic salience of goods. This is a good paper to help build an intuition of what I mean by salience and what it means for a good or a good's characteristics to be salient.

Dias et al: https://ideas.repec.org/a/taf/jgsmks/v20y2010i2p149-163.html This is a paper about how price salience impacts consumer perceptions and purchase intentions. I added this paper because I think it hits the nail on the head here. Also, it gives a good review of the literature that is most related to your question.

Hope this helps.

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