Online Sellers Frame a Premium Price as a Discount: Synchronizing Price Increase and List-Price Introduction

This research investigates a newly observed online pricing practice in which a seller frames a price premium as a discount by simultaneously increasing the price and introducing a list price, a scheme we call “Premium and List Price Synchronization” (PLPS). By analyzing longitudinal data of list prices on Amazon, we find that (a) 21.8% of list-price introductions are accompanied by a simultaneous price increase and, for 75% of these events, the price drops simultaneously when the list price is later removed; (b) PLPS has a positive sales effect; and (c) PLPS is more likely to lure shoppers to buy products with a large volume of consumer reviews. These findings suggest that PLPS is a prevalent online pricing behavior that allows sellers to simultaneously achieve higher profit margins and a larger sales volume at consumers’ expense. Shoppers, consumer advocates, and regulators should be alerted to the prevalence of PLPS, given its potential to mislead shoppers and exploit their trust in user-generated information.