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

ABSTRACT 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, we 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.