Anchoring and decoy pricing
What's a fair price to pay for something? In particular, for something you aren't familiar with? In an ideal world you'd shop around to see a range of prices. But that isn't always practical: you might be in a hurry, or maybe the price isn't high enough to be worth the effort. In a situation like this you might be influenced by anchor pricing . Dropping an anchor Imagine you've walked into a liquor store to buy a bottle of tequila. What's a fair price to pay? The store may have placed bottles of a popular brand in a prominent location, and let's say they're $40 each. That could become your anchor price. Then you might be willing to pay $50 for a premium brand, or $30 for a generic one. Compared to a shop down the road they might be over-charging by $10 a bottle, but the prices seem fair because your expectations have been anchored at $40. Deploying decoys A related practice is known as decoy pricing . Imagine there was a bottle of generic tequila f