On the Discontinuity of Demand Curves Around Zero: Charging More and Selling More

Dan Ariely, Massachusetts Institute of Technology
Uri Gneezy, University of California, San Diego
Ernan Haruvy, University of Texas, Dallas
The standard economic model assumes that demand is weakly decreasing in price. While this is likely true for most price levels, it might not hold for the price of zero, where social norms might be invoked. A set of experiments shows that switching from a “low” price to a price of zero has two effects on behavior: First, in accordance with economic theory, more people demand the product. Second, whereas in the low price case some individuals demand high quantities of the product, in the zero price case most people take only one unit of the product.
[ to cite ]:
Dan Ariely, Uri Gneezy, and Ernan Haruvy (2008) ,"On the Discontinuity of Demand Curves Around Zero: Charging More and Selling More", in NA - Advances in Consumer Research Volume 35, eds. Angela Y. Lee and Dilip Soman, Duluth, MN : Association for Consumer Research, Pages: 36-38.