the role of reference prices in experimental auctions abstract we examine the role of reference prices field prices in willingness to pay studies involving experimental auctions using a 2nd price vickrey auction we find that provision of reference prices increases bid values

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

a model of how discounting high priced brands affects the sales of low priced brands drawing on a consumer preference distribution structure postulated in analytical modeling research the author develops a separate effects model that separates the total discount effect of a compet

the transferability and depletability of externalities abstract this paper is concerned with symmetry and asymmetry in pollution pricing as conditions for the attainment of a pareto optimum in pollution pricing it has already been claimed freeman j environ econom manage 8 321 329 1984 that for both depletable and undepletable externalities pollution pricing should be asymmetric it is shown in this paper that the relevant distinction is not between depletable and undepletable externalities rather it is between transferable and non transferable externalities the effects of which can or cannot be transferred by the recipient to another party optimality requires symmetric pricing for transferable externalities and asymmetric pricing for non transferable externalities

a test of the equality of closed ended and open ended contingent valuations a test is developed to find whether open ended and closed ended contingent valuation mechanisms lead to significantly different results the test is based on joint estimation of willingness to pay responses to open and closed ended questions asked of the same sample of individuals in a public good example individuals do respond differently depending on question format possible explanations include different incentives for strategic behavior and respondents lack of familiarity with the open ended question type no differences in willingness to pay were found in a private good example

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

understanding the large negative impact of oil shocks this paper oers a plausible explanation for the close link between oil prices and aggregate macroeconomic performance in the 1970s although this link has been well documented in the empirical literature standard economic models are not able to replicate this link when actual oil prices are used to simulate the models in particular standard models cannot explain the depth of the recession in 1974 75 and the strong revival in 1976 78 based on the oil price movements in that period this paper argues that a missing multiplier accelerator mechanism from standard models may hold the key

price information and bidding behavior in repeated second price auctions examining panel data on bidding behavior in over forty second price auction markets with repeated trials we observe that i posted prices influence the behavior of the median naive bidder ii posted prices do not affect the behavior of the median experienced bidder or the bidder for familiar goods and iii anticipated strategic behavior wanes after two trials the results suggest that while affiliation might exist in auctions for new goods the repeated trial design with nonprice information removes the correlation of values and provides the experience that bidders need to understand the market mechanism

constructive consumer choice processes consumer decision making has been a focal interest in consumer research and consideration of current marketplace trends e g technological change an information explosion indicates that this topic will continue to be critically important we argue that consumer choice is inherently constructive due to limited processing capacity consumers often do not have well defined existing preferences but construct them using a variety of strategies contingent on task demands after describing constructive choice consumer decision tasks and decision strategies we provide an integrative framework for understanding constructive choice review evidence for constructive consumer choice in light of that framework and identify knowledge gaps that suggest opportunities for additional research

posted prices and bid affiliation evidence from experimental auctions in most experimental auctions researchers ask participants to bid on the same item in multiple po tentially binding rounds posting the price submitted by the top bidder or bidders after each of those rounds if bids submitted in later rounds are affiliated with posted prices from earlier rounds this practice could result in biased value estimates in this article we discuss the results of an experiment designed explicitly to test whether posted prices affect bidding behavior we find that for familiar items high posted prices lead to increased bids in subsequent rounds our results have implications for researchers conducting experimental auctions article advances the literature in several im portant ways first we report the design and results of the only study designed specifically to control for the effects of posted prices on bids in subsequent rounds we do this with the aid of confederate bidders who were instructed to bid within a certain narrow range thus we have multiple treatments that vary only by the presence or absence of confederate bidders al lowing for what we believe to be the cleanest possible test of the effect of posted prices on bidding behavior in later rounds while list and shogren 1999 model bids in round t as a function of the posted price in round t 1 through our use of confederate bidders to con trol posted prices we are able to test whether exposure to high posted prices has an effect that accumulates over the course of multiple rounds leading to a gradual increase in mean bids second our methods of analysis are more complete than previous work examining bid af filiation we not only compare summary statis tics from early and late rounds but we also use panel data analysis to understand how in dividual participants bids are affected by the presence of confederate bidders focusing on individuals rather than summary statistics al lows us to understand how individual specific characteristics influence affiliation and it also allows us to better understand the role of out liers

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

hierarchic demand and the engel curve for variety ahstract the usual treatment of consumer demand theory assumes a solution to the demand equations with positive quantities of all commodities this paper characterises a class called hierarchic demand systems for which only a subset of commodities are in the purchased set the hierarchic linear expenditure svstem is used to illustrate interesting properties of such systems the empirical section shows how the number of commodities purchased expands with total expenditure both in aggregate and for commodity groups the data clearly establish the empirical importance of corner solutions and of the purchase decision in demand studies

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

universal health insurance in the clinton plan coverage as a tax financed public good the financing arrangements embodied in the clinton health reform plan involve some important differences in the way in which public goods are usually financed the subsidies to small low wage firms mandated to provide benefits distort markets in both labor and products and offer incentives for the creation of small firms in addition the financing scheme implicitly envisions a head tax on families at modest income levels but offers a possible rationale for it nevertheless the main reason for many of the financing features appears to be an attempt to hold down the apparent budgetary cost of universal coverage

an empirical analysis of latitude of price acceptance in consumer package goods scanner panel data analyses for sweetened and unsweetened drink categories with four brands in each support the presence of a region of price insensitivity around a reference price the analyses also suggest that consumers with higher average reference price have a wider latitude of price acceptance consumers with a higher frequency of purchase i e shorter average interpurchase time interval are found to have a narrower latitude of price acceptance because they are more aware of the range of price distributions finally consumers with a higher average brand loyalty have a wider latitude of price acceptance demonstrating greater tolerance of price fluctuations

equity considerations in utility based measures of health outcomes in economic appraisals an adjustment algorithm in this paper we consider whether methods currently used to measure utility of health outcomes are consistent with the equity criteria adopted by researchers we show that unless the chosen equity criterion is incorporated in the design of the measurement instrument the derived health state utilities are inconsistent with the equity criterion except under special circumstances adjustment algorithms are derived based on the axioms of von neumann morgenstern utility theory which take account of difference equity criteria currently adopted in the literature the proposed approach is based on simple lottery questions of the type already used widely in empirical studies

a comparative analysis of reference price models the effect of reference price on brand choice decisions has been well documented in the literature researchers however have differed in their conceptualizations and therefore in their modeling of reference price in this article we evaluate five alternative models of reference price of which two are stimulus based i e based on information available at the point of purchase and three that are memory based i e based on price history and or other contextual factors we calibrate the models using scanner panel data for peanut butter liquid detergent ground coffee and tissue to account for heterogeneity in model parameters we employ a latent class approach and select the best segmentation scheme for each model the best model of reference price is then selected on the basis of fit and prediction as well as on the basis of parsimony in cases where the fits of the models are not very different in all four categories we find that the best reference price model is a memory based model namely one that is based on the brand s own price history in the liquid detergent category however we find that one of the stimulus based models namely the current price of a previously chosen brand also performs fairly well we discuss the implications of these findings

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

the asymmetric share effect an empirical generalization on cross price effects abstract prior empirical literature states that asymmetry in cross price effect favors the high share brand that is when high share brands discount they have a greater impact on low share brands than the reverse this conclusion is based on consideration of cross price elasticities the authors point out that focusing on cross price elasticities for assessing asymmetry is inappropriate for determining the incremental profitability from price promotions instead asymmetries should be investigated in absolute cross price effects that is change in market share of a competing brand for a unit price change of the focal brand the authors theoretically and empirically demonstrate that asymmetry reverses when absolute cross price effect is considered that is the absolute cross price effect of a price reduction of a low share brand on the market share or sales of a high share brand is greater than the reverse the authors discuss the implications of the findings and future research directions

effects of cheap talk on consumer willingness to pay for golden rice a large body of literature suggests willingness to pay is overstated in hypothetical valuation questions as compared to when actual payment is required recently cheap talk has been proposed to eliminate the potential bias in hypothetical valuation questions cheap talk refers to process of explaining hypothetical bias to individuals prior to asking a valuation question this study explores the effect of cheap talk in a mass mail survey using a conventional value elicitation technique results indicate that cheap talk was effective at reducing willingness to pay for most survey participants however consistent with previous research cheap talk did not reduce willingness to pay for knowledgeable consumers

on the theory of reference dependent preferences a theory is proposed in which preferences are conditional on reference points it is related to tversky and kahneman s reference dependent preference theory but is simpler and deviates less from conventional consumer theory preferences conditional on any given reference point satisfy conventional assumptions apart from a continuity condition the only additional restriction is to rule out cycles of pairwise choice the theory is consistent with observations of status quo bias and related effects reference points are treated as subject to change during the course of trade the implications of endogeneity of reference points for behaviour in markets are investigated

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

a simultaneous approach to the whether what and how much to buy questions consumer s purchase decisions of whether to buy what to buy and how much to buy are examined simultaneously based on a consumer utility maximization problem an unobservable threshold price about which a consumer pivots from nonpurchase to purchase can be deduced with any model specification the interrelationships between purchase decisions can be explicitly derived the model is applied to coffee purchasing data in addition by suppressing the nonpurchase options the model is compared with an alternative approach appearing in the marketing literature

effects of seller supplied prices on buyers product evaluations reference prices in an internet auction context a field experiment investigated the impact of two external reference points under the seller s control on the final price of an auction when an item s seller specified a high external reference price a reserve price the final bid was greater than when the seller specified a low external reference price a minimum bid when the seller provided both high and low reference prices the reserve influenced the final bid more the low reference price led to a lower outcome compared to when the seller did not communicate any reference price the number of bidders influenced outcomes in the absence of seller supplied reference prices

the decomposition of promotional response an empirical generalization price promotions are used extensively in marketing for one simple reason consumers respond the sales increase for a brand on promotion could be due to consumers accelerating their purchases i e buying earlier than usual and or buying more than usual and or consumers switching their choice from other brands purchase acceleration and brand switching relate to the primary demand and secondary demand effects of a promotion gupta 1988 captures these effects in a single model and decomposes a brand s total price elasticity into these components he reports for the coffee product category that the main impact of a price promotion is on brand choice 84 and that there is a smaller impact on purchase incidence 14 and stockpiling 2 in other words the majority of the effect of a promotion is at the secondary level 84 and there is a relatively small primary demand effect 16 this paper reports the decomposition of total price elasticity for 173 brands across 13 different product categories on average we find that 25 of the elasticity is due to primary demand expansion i e purchase acceleration and 75 to secondary demand effects or brand switching thus while gupta s finding that the majority of promotional response stems from brand switching is supported the average magnitude of the effect appears to be smaller than first thought more important there is ample evidence that promotions have a significant primary demand effect the relative emphasis on purchase acceleration and brand switching varies systematically across categories and the second goal of the paper is to explain this variation as a function of exogeneous covariates in doing this we recognize that promotional response is the consumer s reaction to a price promotion and therefore develop a framework for understanding variability in promotional response that is based on the consumer s perspective of the benefits from a price promotion these benefits are posited to be a function of i category specific factors ii brand specific factors and iii consumer characteristics the framework is formalized as a generalized least squares meta analysis in which the brand s price elasticity is the dependent variable several interesting results emerge from this analysis category specific factors brand specific factors and consumer demographics explain a significant amount of the variance in promotional response for a brand at both the primary and secondary demand levels category specific factors have greater influence on variability in promotional response and its decomposition than do brand specific factors there are several instances where exogenous variables do not affect total elasticities yet significantly affect individual components of total elasticity in fact the lack of a significant relationship between the variables and total elasticity is often due to offsetting effects within two or more of the three behavioral components of elasticity this is particularly true for brand specific factors which typically have no effect on total elasticity yet have important effects on the individual behaviors there is some evidence to suggest that not all promotion related increases in primary demand are due to forward buying in some cases promotions appear to increase consumption we use these results to illustrate how category and brand specific factors work to drive primary and secondary demand elasticities in different directions in short this paper offers an empirical generalization of a key finding on promotional response how elasticities decompose across brand choice purchase incidence and stockpiling and new insights into factors that explain variance in promotional response these findings are likely to be of interest to researchers who are concerned with theory development and the generalizability of marketing phenomena and to managers who plan promotion campaigns

contingent valuation from dubious to hopeless abstract approximately 20 years ago peter diamond and i wrote an article for this journal analyzing contingent valuation methods at that time peter s view was that contingent valuation was hopele

the cross price effect on willingness to pay estimates in open ended contingent valuation abstract previous literature has shown that potential buyers use a reference price or product to form their opinion about the value of a new product therefore the pricing decision is an interactive process we investigate the two generalizations of the cross price effect the neighborhood price effect and the asymmetric price effect on consumer willingness to pay wtp for multiple similar products in an open ended contingent valuation context results show that the cross price effect on wtp is prominent with the neighborhood price effect holding in contingent valuation no conclusions are reached about the asymmetric price effect