Intrigued by the recent emergence and success of low-cost airlines, which use the additive option price framing (as opposed to the subtractive option price framing used by the traditional full-service airlines), we attempted to develop and empirically test a theoretical model that can help better understand the success of this innovative pricing practice for optional services. Drawing on the prospect theory and the loss aversion and endowment effect theory, we argue that option price framing affect customer responses such as perceived risk, perceived price fairness and affect. Further, we propose interaction effects between option framing and product type (utilitarian vs. hedonic) on perceived risk. Using a quasi-experimental design, we constructed four scenarios (2 option price framings x 2 product types). We administered the scenario-based survey among part-time MBA students (full-time managers). Analysis results of 132 responses demonstrated that customer responses in perceived risk, perceived fairness and affect were more favorable in the additive option framing, which in turn led to higher purchase intention. Further, these effects were stronger for utilitarian products. For hedonic products, no difference in perceived risk was observed between the two option price framings. Consequently, our study offered an explanation for when and why the additive option price framing might work better.

• Sunmee Choi(Yonsei University)
• Shinyoung Kim(Yonsei University)
• Jungsun Han(Yonsei University)