asymmetric promotion effects and brand positioning several studies have shown that promotions of national brands yield more effect than those of store brands e g allenby and rossi 1991 blattberg and wisniewski 1989 however the evolution of price quality data available from consumer reports over the last 15 years seems to reveal a reduction of the quality gap between store brands and national brands while price differences remain substantial simultaneously the share of private label brands has increased progressive grocer 1994 in this context we study whether we can maintain a view of the world where national brands may easily attract consumers from store brands through promotions whereas store brands are relatively ineffective in attracting consumers from national brands by such means we analyze consumer reactions to price discounts in a parsimonious preference model featuring loss aversion and reference dependence along dimensions of price and quality hardie johnson and fader 1993 tversky and kahneman 1991 the key result of our analysis is that given any two brands there is an asymmetric promotion effect in favor of the higher quality higher price brands if and only if the quality gap between the brands is sufficiently large in comparison with the price gap thus the direction of promotion asymmetry is not unconditional it depends uniquely on the value of the ratio of quality and price differences compared to a category specific criterion which we call if the ratio of quality and price differences is larger than this criterion the usual asymmetry prevails if such is not the case the lower quality lower price brands promote more effectively more precisely our model predicts that cross promotion effects depend on two components of brand positioning in the price quality quadrant first we define a variable termed positioning advantage that indicates whether relative to the standards achieved by another brand a given brand is underpriced positive advantage or overpriced negative advantage promotion effectiveness is increasing in this variable second cross promotion effects between two brands depend on their distance in the price quality quadrant this variable impacts promotion effectiveness negatively and symmetrically for any pair of brands positioning advantage and brand distance are orthogonal components of brand positioning irrespective of the degree of correlation between available price and quality levels in the market empirically we investigate the role of brand positioning in explaining cross promotion effects using panel data from the chilled orange juice and peanut butter categories we compute the independent positioning variables positioning advantage and brand distance from readily available data on price and quality positioning after obtaining our estimates of we next measure promotion effectiveness by estimating choice share changes in response to a price discount using a choice model that does not contain any information about quality price ratios finally we test the relation between the two positioning variables and the promotion effectiveness measures the data reveal that in the orange juice category lower quality lower price brands generally promote more effectively than higher quality higher price brands in the peanut butter data the opposite asymmetry holds in both cases inter brand promotion patterns are well explained by the positioning variables an attractive feature of our model is that in addition to the direction of promotion asymmetries it also explains the extent of those asymmetries a further interesting aspect of this approach is that we go beyond a categorization of brands into price tiers for instance lower tier brands in our data may promote more effectively than one national brand but less effectively than another consistent with our theoretical predictions the data presented here seem to confirm that such cases occur because the lower tier brand offers a favorable trade off of price and quality differences compared with one national brand and a less favorable trade off compared with the other the content of this paper is potentially relevant for brand managers or retailers concerned with predicting the impact of their promotions the paper is of particular interest to marketing scientists who study the performance of store brands versus national brands and may also appeal to those who wish to explore the marketing implications of behavioral decision theory finally our investigation does not reject blattberg and wisniewski s 1989 finding shared by allenby and rossi 1991 and hardie johnson and fader 1993 that national brands have a principle advantage in promotion effectiveness rather it formalizes when this principle advantage is overruled by positioning disadvantages of such brands

am i getting a good deal reference dependentdecision making when the reference price is uncertain models of consumer decision making commonly incorporate reference dependent preferences in these models the reference point is typically assumed to be known by the consumer however research on price recall and the reference formation process reveals that the reference price is often uncertain at the time of purchase reference price uncertainty creates ambiguity for the consumer about whether they are getting a good or bad deal this paper develops a model of consumer choice in the presence of reference dependent preferences when the reference price is uncertain data from two empirical studies that vary the product category and order of the elicitation of reference prices show that the new model generally outperforms conventional discrete choice models that either ignore reference prices or treat reference prices as certain the new model provides insights into the effect of reducing reference price uncertainty on consumer choice and reveals that high uncertainty smoothes the kink in the demand curve that is present in traditional reference price demand models

the concept of quality and the efficiency of markets for consumer products can consumers trust prices to be good quality indicators previous studies based on quality data from consumer reports have indicated that the relation of price to overall quality is quite weak this paper demonstrates that these studies are methodologically invalid by showing that the concept of overall quality has many dimensions to what extent do inefficient variants occur in the market previous studies have suggested that there is a considerable degree of inefficiency in the market alternative calculations imply that inefficient variants are in fact frequent but that the loss to consumers is much lower than previously suggested

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

competitive strategies for late entry into a market with a dominant brand this paper considers optimal positioning advertising and pricing strategies for a firm contemplating entry in a market dominated by an entrenched competitor drawing on behavioral research on consumer preference formation we develop an individual level model that reflects differing consumer responses to similar products offered by the dominant brand and later entrants an effect we term asymmetric preferences from the resulting aggregate market response model we derive several competitive implications notably 1 that preference asymmetry can make a differentiated late entry strategy optimal even if preferences would appear to dictate otherwise and 2 that me too strategies are not equilibrium late entry strategies more generally our analysis suggests that preference asymmetry can contribute to the persistent competitive advantage of dominant brands

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

a nonparametric approach to modeling choice with limited data choice models today are ubiquitous across a range of applications in operations and marketing real world implementations of many of these models face the formidable stumbling block of simply identifying the right model of choice to use because models of choice are inherently high dimensional objects the typical approach to dealing with this problem is positing a priori a parametric model that one believes adequately captures choice behavior this approach can be substantially suboptimal in scenarios where one cares about using the choice model learned to make fine grained predictions one must contend with the risks of mis specification and overfitting underfitting thus motivated we visit the following problem for a generic model of consumer choice namely distributions over preference lists and a limited amount of data on how consumers actually make decisions such as marginal information about these distributions how may one predict revenues from offering a particular assortment of choices an outcome of our investigation is a nonparametric approach in which the data automatically select the right choice model for revenue predictions the approach is practical using a data set consisting of automobile sales transaction data from a major u s automaker our method demonstrates a 20 improvement in prediction accuracy over state of the art benchmark models this improvement can translate into a 10 increase in revenues from optimizing the offer set we also address a number of theoretical issues among them a qualitative examination of the choice models implicitly learned by the approach we believe that this paper takes a step toward automating the crucial task of choice model selection this paper was accepted by yossi aviv operations management

context dependent preferences and innovation strategy disruptive innovations introduce a new performance dimension into a product category but often suffer from inferior performance on key performance dimensions of their existing substitutes hence the followers of these innovations face an important decision to make they must choose to improve the new technology either on the key performance dimension shared with the old technology or on the new performance dimension this paper investigates which path firms should choose when they face such a dilemma in the absence of any cost or capability issues in doing so we integrate customer response into the theory of technological evolution and allow preferences on the product choices to be context dependent we show that context dependent preferences may encourage the follower to improve the new technology on the new performance dimension later we extend our game to a dynamic one and show that the context dependent preferences may cause the pioneer to innovate less this paper was accepted by j miguel villas boas marketing

reference points in revenue sharing contracts how to design optimal supply chain contracts abstract coordinating supply chains is an important goal for contract designers because it enables the channel members to increase their profits recently many experimental studies have shown that behavioral aspects have to be taken into account when choosing the type of contract and specifying the contract parameters in this paper we analyze behavioral aspects of revenue sharing contracts we extend the classical normative decision model by incorporating reference dependent valuation into the decision model and show how this affects inventory decisions we conduct different lab experiments to test our model as a result human inventory decisions deviate from classical normative predictions and we find evidence for reference dependent valuation of human decision makers we also show how contract designers can use the insights we gained to design better contracts

quantity discount dependent consumer preferences and competitive nonlinear pricing abstract producers of consumer packaged goods often offer several package sizes of the same product and charge a lower unit price for a larger size in this article the authors investigate the quantity discount effect or the phenomenon that consumers derive transaction utility from the unit price difference between a small and a large package size of the same product the authors propose a modeling framework composed of a demand side model and a supply side model the empirical results suggest that quantity discount induced gains or losses have a significant impact on consumer buying behavior the authors also find a substantial amount of structural heterogeneity that is some consumers perceive quantity discounts as gains whereas others perceive quantity discounts as losses conversely the supply side analysis suggests that manufacturers in the empirical application do not consider quantity discount effects when setting prices through a series of policy experiments the authors show that by accou

looking for loss aversion in scanner panel data the confounding effect of price response heterogeneity recent work in marketing has drawn on behavioral decision theory to advance the notion that consumers evaluate attributes and therefore choice alternatives not only in absolute terms but asdeviations from a reference point the theory has important substantive and practical implications for the timing and execution of price promotions and other marketing activities choice modelers using scanner panel data have tested for the presence of these reference effects in consumer response to an attribute such as price in applications of the theory of reference dependent choice tversky and kahneman 1991 some modelers report empirical evidence of loss aversion when a consumer encounters a price above his or her established reference point a loss the response is greater than for a price below the reference point a gain researchers have gone so far as to suggest that evidence for the so called reference effect make it an empirical generalization in marketing e g kalyanaram and winer 1995 meyer and johnson 1995 it is our contention that the measurement of loss aversion in empirical applications of the reference dependent choice model is confounded by the presence of unaccounted for heterogeneity in consumer price responsiveness our reasoning is that the kinked price response curve implied by loss aversion is confounded with the slopes of the response curves across segments that are differentially responsive to price a more price responsive consumer with a steeper response function tends to have a lower price level as a reference point this consumer faces a larger proportion of prices above his reference point thus the response curve is steeperin the domain of losses similarly the less price responsive consumer sees a greater proportion of prices below his reference point so the response curve is less steep within the domain of gains as a result any cross sectional estimate of loss aversion that does not take this into account will be biased upward researchers who do not control for heterogeneity in price responsiveness may arrive at incorrect substantive conclusions about the phenomenon it is interesting to note that in this instance failure to control for heterogeneity induces a bias infavor of finding an effect rather than the more typical case of attenuation of the effect toward zero we first test our assertion regarding the referencedependent model using scanner panel data on refrigerated orange juice and subsequently extend this analysis to 11 additional product categories in all cases we find as predicted that accounting for price response heterogeneity leads to lower and frequently nonsignificant estimates of loss aversion we do however find some categories in which the effect does not disappear altogether we also estimate loss aversion using a sticker shock model of brand choice in which the reference prices arebrand specific in line with the results of the majority of prior literature we find smaller and insignificant estimates of loss aversion in this model we show that this is because in the sticker shock model there is no apparent correlation between the price responsiveness of the consumer and the representation of reference effects as losses or gains our findings strongly suggest that loss aversion may not in fact be a universal phenomenon at least in the context of frequently purchased grocery products

asymmetric and neighborhood cross price effects some empirical generalizations this paper provides some empirical generalizations regarding how the relative prices of competing brands affect the cross price effects among them particular focus is on the asymmetric price effect and the neighborhood price effect the asymmetric price effect states that a price promotion by a higher priced brand affects the market share of a lower priced brand more so than the reverse the neighborhood price effect states that brands that are closer to each other in price have larger cross price effects than brands that are priced farther apart the main objective of this paper is to test if these two effects are generalizable across product categories and to assess which of these two effects is stronger while the neighborhood price effect has not been rigorously tested in past research the asymmetric price effect has been validated by several researchers however these tests of asymmetric price effect have predominantly used elasticity as the measure of cross price effect the cross price elasticity measures the percentage change in market share or sales of a brand for 1 change in price of a competing brand we show that asymmetries in cross price elasticities tend to favor the higher priced brand simply because of scaling effects due to considering percentage changes furthermore several researchers have used logit models to infer asymmetric patterns we also show that inferring asymmetries from conventional logit models is incorrect to account for potential scaling effects we consider the absolute cross price effect defined as the change in market share percentage points of a target brand when a competing brand s price changes by one percent of the product category price the advantage of this measure is that it is dimensionless hence comparable across categories and it avoids scaling effects we show that in the logit model with arbitrary heterogeneity in brand preferences and price sensitivities the absolute cross price effect is symmetric we develop an econometric model for simultaneously estimating the asymmetric and neighborhood price effects and assess their relative strengths we also estimate two alternate models that address the following questions i if i were managing the ith highest priced brand which brand do i impact the most by discounting and which brand hurts me the most through price discounts ii who hurts whom in national brand vs store brand competition based on a meta analysis of 1 060 cross price effects on 280 brands from 19 different grocery product categories we provide the following empirical generalizations 1 the asymmetric price effect holds with cross price elasticities but tends to disappear with absolute cross price effects 2 the neighborhood price effect holds with both cross price elasticities and absolute cross price effects and is significantly stronger than the asymmetric price effect on both measures of cross price effects 3 a brand is affected the most by discounts of its immediately higher priced brand followed closely by discounts of its immediately lower priced brand 4 national brands impact store brands more so than the reverse when the cross effect is measured in elasticities but the asymmetric effect does not hold with absolute effects store brands hurt and are in turn hurt the most by the lower priced national brands that are adjacent in price to the store brands 5 cross price effects are greater when there are fewer competing brands in the product category and among brands in nonfood household products than among brands in food products the implications of these findings are discussed

could ralph nader s entrance and exit have helped al gore the impact of decoy dynamics on consumer choice abstract people are frequently faced with making a new choice decision after a preferred option becomes unavailable prior research on the attraction effect has demonstrated how the introduction of an option into a choice set increases the share of one of the original options the authors examine the related but previously unaddressed issue of whether the unexpected exit of an option from a choice set returns the choice shares of the original options to the status quo in a series of experiments they observe that when an option turns out to be unselectable following a choice problem in which it was selectable the choice shares of the remaining options are predictably different from those of a choice problem in which the option was unselectable from the start they also observe that this attraction effect due to the disappearance of a decoy is likely a consequence of changes in the importance of decision criteria they conclude with a discussion of the theoretical and managerial implications of the research

the impact of heterogeneity in purchase timing and price responsiveness on estimates of sticker shock effects the notion that individuals have an internal reference price against which they compare observed prices is well supported by several psychological theories empirically several papers in the marketing literature employing scanner panel data have modeled the impact of reference prices on brand choice via the sticker shock formulation in which consumers evaluate choice alternatives using differences between shelf prices and reference prices most of the studies reported thus far have not accounted for heterogeneity in price response among consumers and have typically imputed reference prices from the shelf prices of brands that a consumer is supposed to have observed on previous purchases in the category since category marketing activity can differentially affect the purchase timing of households we argue that this measure of reference price may follow certain systematic patterns across consumers and when combined with unaccounted for price response heterogeneity may result in a spurious sticker shock effect specifically we show that estimates of sticker shock are biased upward if households that are price sensitive in the brand choice decision are also more responsive to category promotion activity in their purchase timing decision we discuss some general conditions under which the bias occurs and conduct a simulation experiment to confirm our specific hypotheses our simulation results show that changes in purchase timing are a critical determinant of the bias in the sticker shock effect we also show that unaccounted for price response heterogeneity can in itself result in a biased sticker shock parameter however this requires very large differences in price sensitivities across consumers far greater than what is normally observed we develop a hierarchical bayes version of the nested logit model which models heterogeneity via individual level parameters in a continuous random effects framework we estimate the model on scanner panel data from the yogurt and ketchup categories we find in both categories that the 95 probability interval of the posterior distribution of the mean sticker shock coefficient contains the value zero therefore at least for the data used in this study there is no evidence for the sticker shock effect at the aggregate level in contrast the corresponding coefficient from a standard model which ignores this heterogeneity is highly significant and supports the existence of a possibly spurious sticker shock effect consistent with our explanation of the underlying cause of the bias households that are more price sensitive in the choice decision are also found to be more responsive to category promotion activity in their decision to purchase in the category the results highlight the measurement problems associated with imputing reference prices from past prices since the frequency duration and price level of a retailer s promotional program depend on its size and prevalence accurate estimates of the sticker shock effect are essential for formulating optimal promotion strategies an adequate accounting of consumer heterogeneity is critical to this effort

modeling loss aversion and reference dependence effects on brand choice based upon a recently developed multiattribute generalization of prospect theory s value function tversky and kahneman 1991 we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points and that consumers weigh losses from a reference point more than equivalent sized gains loss aversion we sketch implications of this model for understanding brand choice we develop a multinomial logit formulation of a reference dependent choice model calibrating it using scanner data in addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model the model s coefficients demonstrate significant loss aversion as hypothesized we also discuss the implications of a reference dependent view of consumer choice for modeling brand choice demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics and examine other implications for competitive strategy

an endowment effect for risk experimental tests of stochastic reference points recent models of reference dependent preferences indicate that expectations may play a prominent role in the presence of behavioral anomalies a subset of such expectations based models predicts an endowment effect for risk that risk attitudes differ when reference points change from certain to stochastic in two purposefully simple risk preference experiments eliminating often discussed confounds i demonstrate both between and within subjects such an endowment effect for risk these results provide needed separation between expectations based reference dependent models allow for evaluation of recent theoretical extensions and may help to close a long standing debate in decision science on inconsistency between utility elicitation methodologies

can insurance payouts prevent a poverty trap evidence from randomised experiments in northern kenya index based insurance can have welfare enhancing effects through two pathways by inducing policyholders to change their investment and risk management decisions or by mitigating weather related sh

dynamic stochastic inventory management with reference price effects we analyze the joint inventory and pricing decisions of a firm when demand depends on not only the current selling price but also a memory based reference price and customers are loss averse the presence of reference price effect leads to a nonconcave one period expected revenue in price and reference price we introduce a transformation technique that allows us to prove under some mild assumptions the optimality of a reference price dependent base stock list price policy which is characterized by a base stock level and a target reference price in addition we show that the target reference price is increasing in the reference price but except in the loss neutral case the base stock level is not monotone in the reference price we also show that in the steady state of the model with the reference price effect the optimal price is lower while the optimal base stock level is higher than their counterparts in the model without the reference price effect

incorporating reference price effects into a theory of consumer choice although there has been a good deal of research on incorporating the effects of reference price formation into empirical models of consumer buying behavior little formal theoretical work had been undertaken to date this paper incorporates reference price effects into the traditional economic theory of consumer choice and examines the effects of reference price formation on the results of the traditional theory its marketing implications and the implications for empirical models which examine the effects of reference price formation on actual consumer behavior several implications of the theoretical model are empirically tested using weekly retail egg sales data from southern california this analysis indicates that reference price formation does have significant effects on consumer behavior furthermore these effects are asymmetric with consumers two and a half times more responsive to egg price increases that are in excess of the reference price than they are to comparable egg price decreases

investigating heterogeneity in brand preferences in logit models for panel data in analyzing panel data the issue of heterogeneity across households is an important consideration if heterogeneity is present but is ignored in the analysis it will result in biased and inconsi

on modeling the advertising operations interface under asymmetric competition abstract using a market share attraction structure of advertising competition and following a supermodular game approach this article demonstrates for an asymmetric oligopoly the directional impact of changes in model parameters on the marketing controlled variables of all rivals advertising budgets and the operations controlled variables of all rivals ordered quantities importantly the various changes are examined analytically empirically and numerically in both non dominated and dominated asymmetric oligopolies in this regard the results indicate that firms in a dominated oligopoly one firm of market share larger than or equal to 50 behave differently compared to firms in a non dominated oligopoly each firm of market share less than 50 in response to changes in model parameters furthermore changes in model parameters are investigated in terms of their relative influential impact on a variety of equilibrium measures in this regard the findings indicate that for the analyzed model the marketing parameters exert much more influence on the equilibrium measures than the operations parameters additionally a change in the mode of competition from non cooperation oligopoly to cooperation joint ownership dictates that strong asymmetric firms of favorable marketing and operations parameters continue advertising but at lower levels and weak asymmetric firms of less favorable parameters cease advertising altogether

removing heterogeneity bias from logit model estimation this paper introduces a new estimation procedure for the logit model that is an extension of a conditional estimation procedure developed by chamberlain chamberlain g 1978 on the use of panel data working paper harvard university 1 52 chamberlain g 1980 analysis of covariance with qualitative data rev econom stud 47 225 238 the method eliminates heterogeneity bias which is present in the estimates produced by traditional estimation techniques it improves the goodness of fit and explanatory power of these models while incorporating purchase event feedback

expectations as endowments evidence on reference dependent preferences from exchange and valuation experiments while evidence suggests that people evaluate outcomes with respect to reference points little is known about what determines them we conduct two experiments that show that reference points are determined at least in part by expectations in an exchange experiment we endow subjects with an item and randomize the probability they will be allowed to trade subjects that are less likely to be able to trade are more likely to choose to keep their item in a valuation experiment we randomly assign subjects a high or low probability of obtaining an item and elicit their willingness to accept for it the high probability treatment increases valuation of the item by 20 30 copyright 2011 oxford university press

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

the effect of local consideration sets on global choice between lower price and higher quality a set of alternatives under consideration is often divided into subsets or local sets by some external e g product display format at the store or internal e g a decision rule factor we propose that the manner in which a global set of alternatives varying in price and quality is divided into local sets can have a systematic effect on consumer choice between a lower price alternative and a higher quality alternative three such effects are investigated 1 consumers who first choose from pairs of products a b b c a c and then choose from the set of all three products a b c are more likely to prefer the cheapest alternative than consumers who only choose from the complete set 2 the choice share of a low price low quality brand is greater when alternatives varying in price quality and features are displayed by brand i e each display presents different models of one brand as compared to a display by feature level i e each display presents comparable models of different brands and 3 consumers considering a pair of two option local sets each consisting of different brands and feature levels e g a feature enhanced model of a low quality brand vs a basic model of a high quality brand are more likely to select a feature enhanced model from the global set of four options than those who consider the same alternatives in other local set configurations or consider only the global set these predictions were supported in seven studies which also provided insights into the boundaries of the effects focusing on the paired comparison effect we discuss the theoretical and practical implications of the findings

joint pricing and inventory control for fresh produce and foods with quality and physical quantity deteriorating simultaneously abstract a great number of models have been proposed to investigate the deterioration inventory however most of models assume that a fixed physical quantity of items deteriorates over time the quality of items does not decay before their expiration dates in practice the quality and physical quantity of many products including fresh produce and foods often deteriorate over time the quality of an item usually plays an important role in influencing the demand for products in this paper we consider the pricing and lot sizing problem for products with quality and physical quantity deteriorating simultaneously the deterioration rate of quality and physical quantity is taken to be time proportional the demand rate is assumed to be deterministic and dependent on the quality of an item the selling price per unit and the on display stock level the theory for finding the optimal solution of problem is discussed and numerical examples are used to illustrate the model and the solution procedure finally sensitivity analysis of the optimal solution with respect to price sensitive parameter and values of different deterioration functions is carried out

specifying price judgments with range frequency theory in models of brand choice abstract to construct a price judgment consumers compare a focal price with one or more reference prices however reference price operationalizations in the brand choice literature use single point summary measures that cannot account for several distributional effects to account for effects beyond the first moment of the reference price distribution the authors specify price judgments in models of brand choice in accordance with range frequency theory the findings indicate that range frequency price judgments provide a more complete specification of reference price effects and become more important with an increase in the second and third moments of a reference price distribution the data also indicate that range effects are stronger for coupon users and frequency effects are stronger for consumers exposed to a trend of prices the results have several implications for choice modeling pricing theory and pricing strategy

multiattribute loss aversion and reference dependence evidence from the performing arts industry we study the prevalence of multiattribute loss aversion and reference effects in a revenue management setting based on data of individual level purchases over a series of concert performances the reference dependence that drives consumer choice is not only based on the price but also on observed sales as a fraction of the seating capacity during their past visits we find that consumers suffer from loss aversion on both prices and seats sold consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references we suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion this paper was accepted by vishal gaur operations management

research note estimating heterogeneous price thresholds a brand choice model with heterogeneous price threshold parameters is used to investigate a three regime piecewise linear stochastic utility function the model is used to explore the relationships between aspects of consumer price sensitivity and price thresholds using hierarchical bayes modeling with the markov chain monte carlo mcmc method this study contributes to the modeling literature on discontinuous likelihoods in choice models the empirical application using our scanner panel data set shows that the reference effect and loss aversion are more marked after price thresholds are taken into heterogeneous price response models furthermore loss aversion is attenuated by using price thresholds than by an aggregate homogeneity model without price thresholds

choosing what i want versus rejecting what i do not want an application of decision framing to product option choice decisions abstract the authors examine the effects of using a subtractive versus an additive option framing method on consumers option choice decisions in three studies the former option framing method presents consumers with a fully loaded product and asks them to delete options they do not want the latter presents them with a base model and asks them to add the options they do want combined the studies support the managerial attractiveness of the subtractive versus the additive option framing method consumers tend to choose more options with a higher total option price when they use subtractive versus additive option framing this effect holds across different option price levels study 1 and product categories of varying price study 2 moreover this effect is magnified when subjects are asked to anticipate regret from their option choice decisions study 2 however option framing has a different effect on the purchase likelihood of the product category itself depending on the subject s initial inter

empirical generalizations from reference price research considerable theoretical justification for consumers use of psychological reference points exists from the research literature from a managerial perspective one of the most important applications of this concept is reference price an internal standard against which observed prices are compared in this paper we propose three empirical generalizations that are well supported in the marketing literature first there is ample evidence that consumers use reference prices in making brand choices second the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process third consistent with other research on loss aversion consumers have been found to be more sensitive to losses i e observed prices higher than reference prices than gains we also propose topics for further research on reference prices

contract preferences and performance for the loss averse supplier buyback vs revenue sharing prior theory claims that buyback and revenue sharing contracts achieve equivalent channel coordinating solutions when applied in a dyadic supplier retailer setting this suggests that a supplier should be indifferent between the two contracts however the sequence and magnitude of costs and revenues i e losses and gains vary significantly between the contracts suggesting the supplier s preference of contract type and associated contract parameter values may vary with the level of loss aversion we investigate this phenomenon through two studies the first is a preliminary study investigating whether human suppliers are indeed indifferent between these two contracts using a controlled laboratory experiment with human subjects taking on the role of the supplier having to choose between contracts we find that contract preferences change with the ratio of overage and underage costs for the channel i e the newsvendor critical ratio in particular a buyback contract is preferred for products wit

price induced patterns of competition this research focuses on how price changes influence the observed pattern of brand competition the paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition a price tier model is proposed to operationalize the theory and to allow predictive testing the price tier model is estimated on 28 brands across four product categories the results show a specific asymmetric pattern of price competition higher price higher quality brands steal share from other brands in the same price quality tier as well as from brands in the tier below however lower price lower quality brands take sales from their own tier and the tier below brands but do not steal significant share from the tiers above the results are consistent with a bimodal preference distribution with the regular price indifference point being located toward the lower quality end of the preference distribution for the categories analyzed

new products the antidote to private label growth abstract as private labels pls continue to grow in power and market share product innovation has become one of the strongest weapons in the national brand nb manufacturer s arsenal in this article the author assesses when and to what extent new products change nbs market position to address this question more than 300 nb and pl introductions are analyzed using a multibreak model that quantifies the impact of product introductions on own share rival nb and pl share and category sales drawing on empirical generalizations the author finds that products introduced by leading nbs standard pls and premium pls are more likely to increase category sales than products introduced by follower nbs or economy pls new products introduced by leader and follower nbs more often boost own share thus new products help prevent the decline of nb shares with respect to competitive impact new products affect rival shares with the exception of those launched by economy pls still nbs tend to hurt rival nbs

credit elasticities in less developed economies implications for microfinance policymakers often prescribe that microfinance institutions increase interest rates to eliminate their reliance on subsidies this strategy makes sense if the poor are rate insensitive then microlenders increase profitability or achieve sustainability without reducing the poor s access to credit we test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in south africa the demand curves are downward sloping and steeper for price increases relative to the lender s standard rates we also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates which is consistent with binding liquidity constraints

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

consumer uncertainty and purchase decision reversals theory and evidence this research examines how prepurchase information that reduces consumer uncertainty about a product or service can affect consumer decisions to reverse an initial product purchase or service enrollment decision one belief commonly held by retailers is that provision of greater amounts of information before the purchase reduces decision reversals we provide theory and evidence showing conditions under which uncertainty reducing information provided before the purchase decision can actually increase the number of decision reversals predictions generated from an analytical model of consumer behavior incorporating behavioral theory of reference dependence are complemented by empirical evidence from both a controlled behavioral experiment and econometric analysis of archival data combined the theory and evidence suggest that managers should be aware that their information provision decisions taken to reduce decision reversals may actually increase them data as supplemental material are available at http dx doi org 10 1287 mksc 2015 0906

modeling multiple sources of heterogeneity in multinomial logit models methodological and managerial issues we offer a framework to specify and estimate various sources of heterogeneity in multinomial logit brand choice models we let each brand specific intercept and each parameter of the explanatory variable vector vary randomly across households in addition we distinguish loyal households from the rest our results suggest that incorporating multiple sources of heterogeneity improves the model fit and suggests higher impact of marketing mix elements on brand choice we highlight the importance of incorporating multiple sources of heterogeneity the model we implement yields valuable managerial insights

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

asymmetric consumer learning and inventory competition we develop a model of consumer learning and choice behavior in response to uncertain service in the marketplace learning could be asymmetric that is consumers may associate different weights with positive and negative experiences under this consumer model we characterize the steady state distribution of demand for retailers given that each retailer holds a constant in stock service level we then consider a noncooperative game in steady state between two retailers competing on the basis of their service levels the demand distributions of retailers in this game are modeled using a multiplicative aggregate market share model in which the mean demands are obtained from the steady state results for individual purchases but the model is simplified in other respects for tractability our model yields a unique pure strategy nash equilibrium we show that asymmetry in consumer learning has a significant impact on the optimal service levels market shares and profits of the retailers when retailers have different costs it also determines the extent of competitive advantage enjoyed by the lower cost retailer

risk preferences and demand drivers of extended warranties we disentangle and study the relative importance of different risk preferences in explaining extended warranty purchases and the high premia paid for them empirical and behavioral research on insurance is at odds with whether diminishing returns curvature of the utility function or loss aversion and nonlinear probability weighting lead to observed consumer behavior this lack of consensus is primarily due to the inability of standard choice data to separate different risk preferences and the consequent need to rely on strong parametric assumptions we design two conjoint studies consistent with simultaneous and sequential decision making with choices about washing machines and extended warranties where subjects are given failure probabilities and repair costs using stated choice data from the surveys we can nonparametrically identify product and risk preferences we find that loss aversion is significantly more important than curvature and probability weights in explaining extended warranty choices importantly failure to decompose risk averse behavior into that arising from curvature loss aversion and probability weighting leads to lower washer prices and profits these findings are robust to alternate reference point assumptions we rationalize the premia paid for warranties by exploring retailer incentives to price discriminate and test the theory on complementary goods pricing finally based on counterfactual analysis forcing separate retailers to sell washers and extended warranties is not necessarily welfare enhancing as cited in the media and previous literature

the budget contraction effect how contracting budgets lead to less varied choice how do consumers adjust their spending when their budget changes a common view is that the allocation of one s current budget should not depend on previous budget allocations contrary to this the authors find that when the budget contracts to a particular level consumers select less variety as measured by the number of different items with some of the budget allocated to them than when their budget expands to that same level this budget contraction effect stems from a reduction in variety under the contracting budget not from variety expansion under the expanding budget evidence from five experiments indicates that the effect is driven by a desire to avoid feelings of loss associated with spreading allocation cuts relative to reference quantities from previous allocations across many items

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

the seeds of dissolution discrepancy and incoherence in buyer supplier exchange in this research we examine a novel mechanism of interorganizational relationship dissolution incoherence in a partner s behavior we propose that the discrepancy between an exchange partner s opportunistic behavior and the focal firm s expectations may create a state of incoherence and uncertainty and that this effect can be damaging to the exchange even when the partner s behavior is better than expected using nearly 500 longitudinal confidential reports of industrial buyers and sellers we find supportive evidence that 1 the net effect of the discrepancy is initially positive when behavior is better than expected but becomes rapidly negative thereafter and 2 the net effect of the discrepancy is always negative when behavior is worse than expected thus these effects will generally damage the exchange even as the partner tries to improve the relationship this gives insight into why exchange relationships that hit a downward spiral can be difficult if not impossible to salvage we also show that the dysfunctional consequences of discrepancy are mitigated through exchange structures such as the magnitude of dependence on an organizational partner the development phase of the relationship and the presence of bilateral idiosyncratic investments implications for theory and the management of interorganizational relationships are developed

the impact of systematic changes in weather on the supply and demand of beverages abstract weather especially temperature plays an important role in determining the supply and demand for a vast variety of goods and services though the economic impact of extreme weather is often measured and reported the impact of systematic changes in weather such as long term temperature trends or short term heat and cold waves are seldom quantified in this research we posit that such systematic changes in temperature impact the profitability of firms and we develop a two step econometric model to quantify the impact the proposed two step model estimates the impact that temperature has on the profitability of firms and partitions this impact into a long term and a short term component we take up the case of six liquid refreshment beverages lrbs for illustrating the impact that systematic change in temperature has on demand the results indicate that a the demand for lrbs is increasing by about 0 21 63 million gallons from year to year on account of the rising temperature trend and b there is an asymmetry in the effect of a heat wave versus a cold wave on beverage demand i e the weekly demand for beverages increases by about 2 1 per degree on account of a heat wave while the weekly demand decreases by only 0 4 per degree on account of a cold wave we also illustrate how these estimates of the impact of the long term temperature trends could be linked to strategic decisions such as facility location and the estimates of the impact of the short term temperature aberrations could be linked to operational decisions such as the inventory order quantity in a week when there is a temperature aberration

consumer price and promotion expectations an experimental study the authors report results from a controlled experiment designed to investigate the impact of a brand s price promotion frequency and the depth of promotional price discounts on the price consumers

reference dependent utility product variety and price competition products such as nike running shoes gillette razors and gatorade sports drink serve as the standard against which consumers evaluate other members of the category empirical evidence suggests that consumers care about not only the consumption utility derived from a product but also the gain loss utility in comparison to the reference product of the category this paper examines how reference dependent utility affects price competition in a horizontally differentiated market where consumers tastes are diverse when consumer valuations are low the reference product is priced lower than a nonreference product in contrast when consumer valuations are high the reference product is priced higher than a nonreference product moreover loss aversion on the price dimension always intensifies competition among low valuation goods whereas loss aversion on the taste dimension softens competition among high valuation goods only if consumer sensitivity to the difference in match quality is above a threshold we also find that an increase in the diversity of consumers tastes reduces equilibrium profits if consumer valuation is low but has the opposite effect if consumer valuation is high we further explore how an increase in the popularity of the reference product affects price competition finally we assess the robustness of the findings by extending the model in different directions the online appendix is available at https doi org 10 1287 mnsc 2017 2834 this paper was accepted by juanjuan zhang marketing

the shape of utility functions and organizational behavior based on measurements among 332 owner managers we investigate how theglobal shape of the utility function i e s shaped versus concave or convex over the total range of outcomes relates to choice behavior we find that the global shape of the utility function differs across decision makers about one third of the owner managers exhibit an s shaped utility function and that the global shape is linked to organizational behavior i e the production system employed a result that does not change when using different methods to identify the decision maker s global shape of the utility function the decision maker s risk attitude risk averse or risk seeking does not affect the choice of the production system whereas the degree of risk aversion based on thelocal shape of the utility function may be important in explaining owner managers trading behavior pennings and smidts 2000 more structural organizational behavior appears to be linked to theglobal shape of the utility function

efficient algorithms for the dynamic pricing problem with reference price effect we analyze a finite horizon dynamic pricing model in which demand at each period depends on not only the current price but also past prices through reference prices a unique feature but also a significant challenge in this model is the asymmetry in reference price effect which implies that the underlying optimization problem is nonsmooth and no standard optimization methods can be applied we identify a few key structural properties of the problem which enable us to develop strongly polynomial time algorithms to compute the optimal prices for several plausible scenarios we complement our exact algorithms by proposing an approximation heuristic and provide an upper bound on the optimal objective value finally we conduct numerical experiments to study the optimal price path and demonstrate the value of dynamic pricing when demands are seasonal we further compare numerically one of the exact algorithms with the heuristic and offer managerial suggestions this paper was accepted by yinyu ye optimization

reference effects of price and promotion on brand choice behavior when consumers are exposed to pricing and promotional activity by frequently purchased packaged goods they may develop expectations that are used as points of reference in evaluating future activi

the impact of reference price effects on the profitability of price promotions this paper investigates the impact of reference price effects on retailer price promotions and describes why these effects can make promoting profitable first we analyze the profit impact of reference price effects generated by a single period of promotion the promotion can increase profit if the gain that these effects create in the promotion period outweighs the loss they create in future periods we then describe how retailers can estimate the optimal strategy of recurring promotions that maximizes profits from reference price effects over a time horizon examples of such strategies are presented for a retailer selling a national brand of peanut butter we obtain insights into how promotion prices timing and profits are affected by changes in costs interest rates consumers reactions to reference price effects and error in estimates used in the model the retailer s optimal reaction to a trade deal is also examined this strategy involves a phase of increased promotion activity sandwiched between phases of decreased activity we explain these results using the effects described in the single period model

accounting for heterogeneity and nonstationarity in a cross sectional model of consumer purchase behavior when calibrating a brand choice model cross sectionally a measure of brand loyalty is often introduced into the utility function to account for differences in utility across households and over time one of the most widely used measures of brand loyalty proposed by guadagni and little 1983 is an exponential smoothing model of past choice behavior by the household in this study we argue that the exponential smoothing model of brand loyalty cannot properly distinguish between sources of variation in utility due to heterogeneity across households and sources of variation due to nonstationarity within household over time we introduce a new measure of brand loyalty derived from a nonstationary dirichlet multinomial choice model in which heterogeneity and nonstationarity are handled distinctly

quality perceptions and asymmetric switching between brands rotating indifference curves are used to induce an income effect that favors superior brands at the expense of inferior brands in a discrete choice model when calibrated on scanner panel data the model yields an objective measure of brand quality which is related to the rate of rotation the model also leads to asymmetric responses to price promotions where switching up to high quality brands is more likely than switching down the model is capable of nesting the standard logit model and is similar to a nested logit model when there exists clusters of brands of like quality the model is used to explore a product line pricing decision where profits are maximized subject to the constraint that consumer utility is maintained

differentiated price loss aversion in destination choice the effect of tourists cultural interest abstract this article looks into the differentiated effects of loss aversion depending on whether individuals show cultural interest when choosing a destination based on the fact that perceived value implies not only sacrifices but also the expectations of a certain level of quality and prospects of satisfaction together with the idea the prospect theory applies to tourism prices the article states the hypothesis that interest in culture when choosing a destination lowers people s loss aversion by incorporating the reference dependent model into a multinomial logit model with random parameters which controls for heterogeneity the empirical application shows that culture interested tourists are less loss averse i e the negative effect of finding a higher than expected price diminishes with cultural interest the expectation of enjoyment of these attributes and the more conscious attitude toward maintenance restoration activities of cultural sites are hypothesized to lead prices to be evaluated differently when selecting a destination

an investigation of reference price segments abstract empirical research on reference price has typically assumed that consumers use either an internal reference price irp or an external reference price erp but not both in brand choice decisions in this article the authors assume that consumers use both irp and erp but may consider one of them more salient than the other the authors develop a model that segments consumers on the basis of the differences in the importance they assign to each type of reference price as well as in their brand preferences and responses to marketing mix variables the authors calibrate the model on data for four categories liquid detergents ketchup tissue and yogurt in all four categories the proposed model performs significantly better than the one that assumes that consumers use either irp or erp exclusively the authors discuss the managerial implications of this finding

asymmetric competition in choice and the leveraging of competitive disadvantages studies of grocery sales show that consumers of store brands switch to price discounted national brands more than consumers of national brands switch to discounted store brands such asymmetric price competition can be explained with numerous mechanisms proposed here and elsewhere we report a choice experiment that replicates asymmetric price competition favoring higher quality competitors and demonstrates asymmetric quality competition favoring lower quality competitors also demonstrated are multiple mechanisms contributing to competitive asymmetries where dominance involving the otherwise preferred brand is particularly potent e g when a higher quality competitor matches the price of an otherwise preferred lower quality brand the findings implicate modifications to 1 theories of decision making when extended to repeat choice 2 empirical models of secondary purchase data and 3 strategies for positioning and attacking brands whereas improving competitive disadvantages often attracts consumers from competitors more than does improving competitive advantages this benefit must be weighed against the differentiation sacrificed by improving competitive disadvantages improving competitive advantages in contrast increases differentiation

the prominence effect in shanghai apartment prices abstract a field study conducted in shanghai identified a robust inconsistency between real estate developers desired sales pattern selling all apartments in a building at similar rates and the actual sales pattern selling good apartments faster the authors explain this inconsistency using tversky sattath and slovic s 1988 prominence principle according to which buyers who were in a choice mode weighed the desirability of floors more heavily than developers who were in a matching mode when setting prices this explanation is corroborated by controlled experiments involving potential home buyers and professional real estate price setters the research relates an intriguing anomaly originally found in paper and pencil surveys to a real world issue in one of the world s most active markets these findings also have implications for issues beyond real estate markets

are the disabled less loss averse evidence from a natural policy experiment i introduction a large literature points to differences in cognitive bias among diverse populations according to lunn and lyons 2010 lower income less educated and older populations are more prone to decision making that deviates from economic rationality also see mather et al 2012 and tymula et al 2013 however as discussed by lunn and lyons 2010 little is known about the decision making biases of other vulnerable populations notably the physically disabled or implications thereof for their economic well being in this study we examine differences in cognitive bias and behavioral heuristics among nondisabled and physically disabled populations specifically using data from a unique israeli government natural policy experiment we assess loss aversion among nondisabled and disabled populations in the decision to purchase a home our empirical tests are motivated by previous findings in physiology and psychology showing that disabled persons often develop physical and mental mechanisms to help compensate for disabilities according to bishop 2005 disabled persons utilize such coping mechanisms to minimize gaps caused by their impairments as further suggested by devins et al 1983 yoshida 1993 livneh and antonak 1997 and bishop and feist price 2002 such strategies and mechanisms allow disabled persons increased control over their health and environment specifically nirje 1972 sands and wehmeyer 1996 and wehmeyer 1998 suggest that disabled populations seek compensatory mechanisms to enhance autonomy efficacy self reliance and self management among noteworthy examples cattaneo and vecchi 2011 summarize a long series of studies indicating the development of compensatory mechanisms among visually impaired persons results of those analyses indicate enhanced nonvisual perceptual sensorial and cortical level abilities among the visually disabled e g amedi et al 2003 crawford et al 2008 hamilton pascual leone and schlaug 2004 hull and mason 1995 muchnick et al 1991 roder rosier and neville 2001 niemeyer and starlinger 1981 in other recent work keysar hayakawa and an 2012 provide evidence of compensatory cognitive mechanisms among persons with language impairments results of experimental analysis indicate diminished decision biases and reduced loss aversion among non native language speakers the authors hypothesize that use of a foreign language reduces the opportunity for spontaneous response and results in a more consciously measured and considered mode of thinking 1 as with visually or language impaired persons the compensatory mechanisms acquired by physically disabled persons may extend beyond the psychophysiological domain to include cognitive adjustments indeed as discussed by stanovich and west 2000 lower levels of cognitive bias could compensate for physical disability and provide for improved coping prospects over the past decade the israeli government sought to privatize public housing via an offer to sell rental units to tenants at a discount from the market price the algorithms utilized by the government to determine the magnitudes of the price reductions varied over time furthermore the price reductions were not forecastable among targeted program participants tenants had the opportunity to either accept or decline government sales offers extended at each successive program iteration our research employs survival analysis to specify and empirically test whether physically nondisabled and disabled tenants exhibited different degrees of loss aversion behavior in their home purchase decisions 2 as first described by kahneman and tversky 1979 loss aversion pertains to household behavior when the aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount p 279 in experimental work tversky and kahneman 1992 find that under even odds for winning and losing the gain should be at least twice as large as the loss for a prospect to be acceptable whereas putler 1992 finds for example that consumers are two and a half times more responsive to price increases that are in excess of the reference price than they are to comparable price declines

dynamic trading with reference point adaptation and loss aversion we formalize the reference point adaptation process by relating it to a way people perceive prior gains and losses we then develop a dynamic trading model with reference point adaptation and loss aversion and derive its semi analytical solution the derived optimal stock holding has an asymmetric v shaped form with respect to prior outcomes and the related sensitivities are directly determined by the sensitivities of reference point shifts with respect to the outcomes we also find that the effects of reference point adaptation can be used to shed light on some well documented trading patterns e g house money break even and disposition effects

assessing the competitive interaction between private labels and national brands in this article we employ the linear approximate almost ideal demand system la aids and specify price reaction equations derived under the la aids specification we perform intracategory analyses using data on six individual categories as well as a pooled analysis on a sample of 125 categories and 59 geographic markets we find that consumer response to price and promotion decisions demand and firm pricing behavior supply jointly determine observed market prices and market shares further estimates of residual demand elasticities suggest that examination of partial demand elasticities alone may provide an incomplete picture of the ability of brands to raise price copyright 2000 by university of chicago press

the effects of relative and referent thinking on tourism product design abstract this study adopts three field experiments to analyze the influence of relative and referent thinking in online tourism auctions of bed and breakfast b b accommodations on consumer bidding behavior in study one the starting bid price equals or is lower than the reference price relative and referent thinking are applied to evaluate the products to see whether consumers prefer monetary or non monetary sales promotions and if they are willing to pay a higher end price in study two moderate extreme deviation appears between the start bidding price and reference price non monetary monetary sales promotions are favored and so higher end price would be paid in study three consumers tended to pay a higher end price due to the symbolic meaning of luxury b b for example greater wealth and social status and did not have a preference for monetary sales promotions the findings could help future researchers when designing tourist products for online auction strategies

consumer choice between hedonic and utilitarian goods abstract in this article the authors examine how consumer choice between hedonic and utilitarian goods is influenced by the nature of the decision task building on research on elaboration the authors propose that the relative salience of hedonic dimensions is greater when consumers decide which of several items to give up forfeiture choices than when they decide which item to acquire acquisition choices the resulting hypothesis that a hedonic item is relatively preferred over the same utilitarian item in forfeiture choices than in acquisition choices was supported in two choice experiments in a subsequent experiment these findings were extended to hypothetical choices in which the acquisition and forfeiture conditions were created by manipulating initial attribute level reference states instead of ownership finally consistent with the experimental findings a field survey showed that relative to market prices owners of relatively hedonic cars value their vehicles more than do owners of relat

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

hysteresis price acceptance and reference prices the existence of price thresholds in grocery retailing is well documented most authors explain the existence of price thresholds using assimilation contrast theory adaptation level theory or prospect theory however each of these theories is untenable if consumers are believed to behave rationally we offer a theoretical explanation grounded in real options theory rot and economic hysteresis we test the rot hypothesis against three plausible alternatives using a maximum likelihood friction model that we augment for unobserved heterogeneity our findings support the rot hypothesis and suggest that the existence of price thresholds in aggregate data are driven by a common recognition of real option values which do not disappear with the inclusion of consumer heterogeneity

the liability of good reputation a study of product recalls in the u s automobile industry in this paper we explore opposing theoretical claims about how organizational reputation affects market reactions to product defects on the one hand good reputation could be a disadvantage because expectations about product quality are more likely to be violated by defects in highly reputed products on the other hand a good reputation could be an advantage because of strong inertial effects on reputation orderings we empirically test these competing hypotheses using data on product recalls in the u s automobile industry from 1975 to 1999 our results support for the idea that reputation can be an organizational liability in that highly reputed firms suffer more market penalty as a result of their product recalls we also propose that the reputational effects are moderated by two important factors substitutability and generalism specialism our results show that having few substitutes with an equivalent level of reputation or a focused product identity stemming from specialism buffers the negative market reactions to product recalls we conclude with a discussion on the implications of these results for institutional reputation and status theories

a generalized utility model of disappointment and regret effects on post choice valuation in this paper we show that performance information about forgone alternatives i e alternative that were considered but not chosen can have a significant impact on post choice valuation our approach introduces a new and parsimonious way of looking at satisfaction that combines the literature on post choice valuation with research regarding generalized expected utility theory while the post valuation literature focuses on the selected brand as the valuation s basis e g anderson and sullivan anderson e w m w sullivan 1993 the antecedents and consequences of customer satisfaction for firms marketing sci 12spring 125 143 bolton and drew bolton r j drew 1991 a multistage model of customers assessments of service quality and value j consumer res 17 375 384 we draw on a stream of research in generalized expected utility theory that considers both chosen and forgone alternatives as the basis for valuation e g bell bell d 1983 risk premiums for decision regret management sci 29 1156 1166 and bell d 1985 disappointment in decision making under uncertainty oper res 33 1 27 loomes and sugden loomes g r sugden 1982 regret theory an alternative theory of rational choice under uncertainty the econom j 92 805 824 and loomes g r sugden 1986 disappointment and dynamic consistency in choice under uncertainty rev econom stud 53 271 282 the result is a combined model of post choice valuation that explicitly incorporates both concepts specifically we extend the existing paradigm of post choice valuation to include buyers regret concerning forgone alternatives proposing a generalized utility theory based treatment of post choice product assessment that uses the intuitively appealing concepts of disappointment and regret as the basis we propose a model for conceptualizing post choice valuation that is consistent with the existing literature discuss how this model extends the construct to consider the influence of forgone alternatives and report results of an empirical test that contrasts our model to important recent work in the area e g boulding et al boulding w a kalra r staelin v a zeithaml 1993 a dynamic process model of service quality from expectations to behavioral intentions j marketing res 30february 7 27 our generalized model of post choice valuation is based on the sum of three components that represent factors that may contribute to consumers assessment of a chosen product or service the first component is expected performance the second component is disappointment which captures the discrepancy between actual and expected performance much as the disconfirmation construct in traditional satisfaction research the third component is regret which captures the difference between the performance of the chosen product service and the performance of a forgone product service this perspective is useful in that risk is captured by the disappointment and regret terms providing an intuitively appealing decomposition of post choice valuation and offering several advances over previous representations of disappointment and regret we test our model via a choice experiment participants in the empirical study were asked to make choices between successive lottery pairs they were then given outcome feedback on the forgone alternative as well as on the chosen alternative in each lottery pair immediately following outcome feedback for each choice subjects were asked to evaluate their decision our results clearly suggest an effect of regret on post choice valuation information about the forgone alternative influenced subjects valuation of the chosen alternative we also find evidence that as predicted the effects of disappointment and regret on post choice valuation are asymmetric specifically the negative effect of disappointment on post choice valuation was greater than the positive effect of elation similarly the negative effect of regret was greater than the positive impact of rejoicing our research offers five contributions to the literature on post choice valuation first our results illustrate the advantage of using generalized utility theory as the basis for conceptualizing and modeling post choice valuation we derive a model of post choice valuation that formally captures the components of disappointment and regret and show that the outcome of both the chosen alternative through disappointment and a forgone alternative through regret can influence the chosen alternative s valuation second we formally integrate the concepts of disappointment and regret which have been examined separately for many years into a single model based on a multiattribute preference structure third we argue that the effects of disappointment and regret on post choice valuation are asymmetric and present empirical evidence in this regard fourth our results suggest that word of mouth regarding forgone alternatives may affect post choice valuation extending research that has not heretofore considered forgone outcomes role in this process finally our development provides a preconsumption measure of potential disappointment and regret in modeling choice at the time of choice consumers may visualize the feelings of disappointment and or regret that will be derived at consumption taking into account both the chosen brand and forgone brands our generalized utility theory based approach to the post choice valuation construct can be useful in examining the role of disappointment and regret as preconsumption constructs

understanding reference price shoppers a within and cross category analysis abstract the authors attempt to draw profiles of reference price shoppers specifically the authors study how selected factors that affect brand choice are correlated with consumer sensitivity to gains and losses with respect to internal reference prices they also study the interaction between sociodemographics and gain and loss sensitivity furthermore the authors analyze cross category correlations in gain and loss sensitivity to shed light on their individual and category specific characters in three categories the results show significant heterogeneity in loss sensitivity among consumers and indicate that loss sensitivity is greater and more heterogeneous than gain sensitivity across categories the results show that loss sensitive shoppers are less influenced by past brand use and that both loss and gain sensitive shoppers more sensitive to price display and feature than the average consumer loss sensitive households tend to be larger and their heads are less likely to be fully employed

loss aversion under prospect theory a parameter free measurement agrowing body of qualitative evidence shows that loss aversion a phenomenon formalized in prospect theory can explain a variety of field and experimental data quantifications of loss aversion are however hindered by the absence of a general preference based method to elicit the utility for gains and losses simultaneously this paper proposes such a method and uses it to measure loss aversion in an experimental study without making any parametric assumptions thus it is the first to obtain a parameter free elicitation of prospect theory s utility function on the whole domain our method also provides an efficient way to elicit utility midpoints which are important in axiomatizations of utility several definitions of loss aversion have been put forward in the literature according to most definitions we find strong evidence of loss aversion at both the aggregate and the individual level the degree of loss aversion varies with the definition used which underlines the need for a commonly accepted definition of loss aversion

the illusion of wealth and its reversal abstractresearch on choice architecture is shaping policy around the world touching on areas ranging from retirement economics to environmental issues recently researchers and policy makers have begun paying more attention not just to choice architecture but also to information architecture or the format in which information is presented to people in this article the authors investigate information architecture as it applies to consumption in retirement specifically in three experiments they examine how people react to lump sums versus equivalent streams of monthly income their primary question of interest is whether people exhibit more or less sensitivity to changes in retirement wealth expressed as lump sums e g 100 000 or monthly equivalents e g 500 per month for life they also test whether people exhibit an illusion of wealth by which lump sums seem more adequate than monthly amounts in certain conditions as well as the opposite effect in which lump sums seem less adequate t