When add-on costs are hidden from an initial price, the basis for comparing offers changes.
Theoretical modelA model for explaining behavior, not a direct test of this interface’s conversion effects.
Example
In a fictional journey, a ¥500 mandatory fee follows a ¥2,000 base price. Showing ¥2,500 and its breakdown from the start is the application proposal.
Why it works
Gabaix and Laibson model conditions under which shrouding persists in markets containing unaware consumers. The paper does not measure conversion effects of total-price displays.
On the web
Make mandatory costs, taxes and renewal conditions visible during comparison. Add optional charges after selection and keep confirmation and billing consistent.
When it backfires
For variable charges, explain the range and calculation before commitment. Evaluate abandonment, questions and refunds as well as sign-ups. This model does not determine legal compliance.
Sources
Models persistent information shrouding when some consumers overlook add-on prices.
Gabaix & Laibson (2006). Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets. Open source