The zero price effect suggests that traditional cost-benefits models cannot account for the psychological effect of getting something for free. A linear model assumes that changes in cost are the same at all price levels and benefits stay the same. As a result, a decrease in price will make a good equally more or less attractive at all price points. The zero price model, on the other hand, suggests that there will be an increase in a good’s intrinsic value when the price is reduced to zero (Shampanier et al., 2007). Free goods have extra pulling power, as a reduction in price from $1 to zero is more powerful than a reduction from $2 to $1. This is particularly true for hedonic products—things that give us pleasure or enjoyment (e.g. Hossain & Saini, 2015). A core psychological explanation for the zero price effect has been the affect heuristic, whereby options that have no downside (no cost) trigger a more positive affective response.

 

Hossain, M. T., & Saini, R. (2015). Free indulgences: Enhanced zero-price effect for hedonic options. International Journal of Research in Marketing, 32(4), 457-460.

Shampanier, K., Mazar, N., & Ariely D. (2007). Zero as a special price: The true value of free products. Marketing Science, 26, 742-757.