Zero Price Effect and Consumer Welfare: Evidence from Online Classified Home Service


We test whether the tendency to overvalue a free service over a paid alternative may lead to inferior economic outcomes. We use data from an online classified home service in Israel that allows sellers to offer their housing units for sale under either free-basic or paid-premium listing categories. Results show that while the vast majority of sellers choose the free-ad category, the paid-premium category generates increased demand, greater transaction price, and decreased time-on-market—adding up to an average net benefit of about 3.5–3.8 percent of the average transaction price (equivalent to about 12K–13K USD). Outcomes are robust to a series of identification and test-design issues.