Can Higher Prices Stimulate Product Use? Evidence From A Field Experiment In Zambia
Source: Harvard Business School
The controversy over whether and how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use, either by targeting distribution to high-use households (a screening effect), or by stimulating use psychologically through a sunk-cost effect. The author develops a methodology for separating these two effects. They implement the methodology in a field experiment in Zambia using door-to-door marketing of a home water purification solution. They find that higher prices screen out those who use the product less. By contrast, they find no consistent evidence of sunk-cost effects.