Drip Pricing When Consumers Have Limited Foresight: Evidence From Driving School Fees

This article empirically examines the “drip” pricing behavior of firms, where consumers purchase a base product and may later buy an add-on, often without anticipating the need for it. A loss leader pricing strategy emerges, with firms pricing the base product below, and the add-on above, standalone levels. Using data from the Portuguese driving instruction market, the authors find that base course prices decrease with competition, while prices for add-on repeat courses do not. A survey reveals that at least 25% of students are inattentive to repeat fees, driven by underestimating failure rates and being unaware of repeat test costs.