Effects of Extreme-Priced Products on Consumer Reservation Prices

We show that an extremely high-priced product featured among more moderately priced products within a catalog can increase the reservation price for a moderately priced target product as well as the category as a whole. We investigate how this increase is influenced by the degree of relatedness between the extreme-priced product and the target as well as the situational and temporal proximity (contiguity) in their presentation. Consistent with our conceptualization, we find that the presence of an extreme cue leads to greater changes in target reservation price when the extreme-priced referent and target are more related and are contiguously presented. Furthermore, the impact of an extreme-priced product's relatedness on reservation price appears to be greater when the contiguity between the extreme-priced product and the target product is high versus when it is low.