covariation assessment by consumers two experiments were conducted to investigate the effect of prior beliefs and information format on consumers assessment of the relationship between price and quality for four frequently purchased grocery products in these studies consumers were shown sets of data each of which presented ranks of 10 brands of a product category on price and quality contrary to prior research on illusory correlation consumers estimates of covariation were relatively accurate and unaffected by the availability of relevant prior beliefs about the nature of the relationship between price and quality for grocery products in general or by format manipulations that varied the ease or difficulty of processing the data these findings are discussed in terms of the effect of detailed instructions the availability of simple heuristics for processing rank ordered data differences between social and consumer perceptions and the stages of consumer information processing most likely to be affected by prior beliefs

retailer pricing strategy and consumer choice under price uncertainty this research examines how consumers choose retailers when they are uncertain about store prices prior to shopping simulating everyday choice participants made successive retailer choices where on each occasion they chose a retailer and only then learned product prices the results of a series of studies demonstrated that participants were more likely to choose a retailer that offered an everyday low pricing strategy edlp or that offered frequent small discounts over a retailer that offered infrequent large discounts this choice advantage for the retailer that was cheaper more often manifested even when its average price was judged to be higher the same results were obtained when choices were made a day apart when price feedback was only given for the chosen retailer and when price feedback was given for both retailers participant s expectations of future prices but not their judgments of retailer s past average prices predicted their subsequent retailer choice

promotion signal proxy for a price cut evidence suggests that some consumers react to promotion signals without considering relative price information we adopt petty and cacioppo s elaboration likelihood model elm to explain this behavior in terms of the elm s peripheral route to persuasion in which the promotion signal is taken as a cue for a price cut experimental results show that low need for cognition individuals react to the simple presence of a promotion signal whether or not the price of the promoted brand is reduced but that high need for cognition individuals react to a promotion signal only when it is accompanied by a substantive price reduction

congestible communications networks and international trade we build a two country model of monopolistic competition with communications networks a communications network is characterized by 1 the existence of large fixed costs of network provision and 2 the presence of congestion it is demonstrated that both the size of a country and the relative magnitude of the congestion effect determine its comparative advantage if the congestion effect resp the cost sharing effect prevails universally a comparative advantage in the goods that require communications is held by the smaller resp larger of the two countries jel classification d43 f12 reseaux de communication congestion et commerce international ce memoire presente un modele de concurrence monopolistique a deux pays avec des reseaux de communication un reseau de communication est caracterise par 1 l existence de couts fixes importants pour la mise en place du reseau et 2 la presence de congestion on montre que la taille du pays et la magnitude relative de la congestion determinent l avantage comparatif si l effet de congestion ou respectivement l effet de partage des couts prevaut un avantage comparatif dans les biens qui demandent plus de communication est detenu par le plus grand respectivement le plus petit des deux pays

learning from mixed feedback anticipation of the future reduces appreciation of the present consumers can evaluate their past choices by comparing their obtained outcome to other possible outcomes we demonstrate that how people process this comparative feedback depends on whether they use it to prepare for future decisions in particular the anticipation of similar future choices increases consumers sensitivity to comparisons with better alternatives and reduces their liking of the chosen option our findings indicate that forward looking consumers selectively test the hypothesis that their current choice can be improved on and as a result disproportionately attend to the unfavorable comparisons and fail to appreciate the value of their current choice

is universal child care leveling the playing field abstract we assess the case for universal child care programs in the context of a norwegian reform which led to a large scale expansion of subsidized child care we use non linear difference in differences methods to estimate the quantile treatment effects of the reform we find that the effects of the child care expansion were positive in the lower and middle parts of the earnings distribution of exposed children as adults and negative in the uppermost part we complement this analysis with local linear regressions of the child care effects by family income we find that most of the gains in earnings associated with the universal child care program relate to children of low income parents whereas upper class children actually experience a loss in earnings in line with the differential effects by family income we estimate that the universal child care program substantially increased intergenerational income mobility to interpret the estimated heterogeneity in child care effects we examine the mediating role of educational attainment and cognitive test scores and show that our estimates are consistent with a simple model where parents make a tradeoff between current family consumption and investment in children taken together our findings could have important implications for the policy debate over universal child care programs suggesting that the benefits of providing subsidized child care to middle and upper class children are unlikely to exceed the costs our study also points to the importance of universal child care programs in explaining differences in earnings inequality and income mobility across countries and over time

estimating store choices with endogenous shopping bundles and price uncertainty abstract we develop a structural model of retail store choices for which household shopping plans and price beliefs are endogenously determined in our model individual households make their store choices based on their expected basket costs which are determined by their shopping plans and price beliefs previous studies use realized purchases as a proxy for unobserved shopping lists and also assume homogenous price expectation across all households over the entire sample period our approach improves the measures of expected basket costs by estimating intended shopping lists of households using a duration model and also by constructing household time store and goods specific price expectations in our empirical application using a scanner data set we find that the store choices become significantly more elastic to prices when the correction is applied

the option value of returns theory and empirical evidence when a firm allows the return of previously purchased merchandise it provides customers with an option that has measurable value whereas the option to return merchandise leads to an increase in gross revenue it also creates additional costs selecting an optimal return policy requires balancing both demand and cost implications in this paper we develop a structural model of a consumer s decision to purchase and return an item that nests extant choice models as a special case the model enables a firm to both measure the value to consumers of the return option and balance the costs and benefits of different return policies we apply the model to a sample of data provided by a mail order catalog company we find considerable variation in the value of returns across customers and categories when the option value is large there are large increases in demand for example the option to return women s footwear is worth an average of more than 15 per purchase to customers and increases average purchase rates by more than 50 we illustrate how the model can be used by a retailer to optimize his return policies across categories and customers

reserves regret and rejoicing in open english auctions auction sellers usually must set a reserve which is the lowest auction price that they will accept i propose that anticipated regret and rejoicing affect reserves regret occurs when the highest bid exceeds the seller s value for the property but is still below the reserve rejoicing occurs when the reserve forces the winning bidder to pay a higher price the impact of regret and rejoicing can be observed by examining sellers learning over sequential auctions particularly when they use a frequency heuristic results from an auction experiment with simulated bidders support the impact of anticipated regret and rejoicing on reserves

a retailer promotion policy model considering promotion signal sensitivity recent research suggests that the signal e g sign or marker with a point of purchase promotion will stimulate a significant sales increase regardless of whether or not that signal is accompanied by a price cut this paper develops a model of retailer profitability that incorporates this promotion signal sensitivity in a field test the profitability of the promotion policy prescribed by this model is compared to the profitability of two other promotion policy setting paradigms a model based policy that does not consider promotion signal sensitivity and one prescribed by industry experts the test results support the proposed model its policy generates 11 more category profit per unit than the model based policy and 12 more than the industry experts implications for retailers and future research are discussed

the effect of discount frequency and depth on consumer price judgments the intensity of price discounting by retailers and manufacturers raises important questions about consumer price judgments in the extreme discounting can take the form of frequent but shallow discounts or deep but infrequent discounts the research reported here explores the effects of these strategies on consumer estimation of price levels for competing stores and brands in an initial experiment in which subjects made brand choices over time a depth effect was observed that contrasted with the frequency effect found in previous research subsequent experiments identified the conditions under which depth vs frequency characteristics of price data dominate consumers price estimation judgments frequency information is more influential when sets of interstore or interbrand comparative prices exhibit complex and overlapping distributions hence creating processing difficulty in contrast a depth bias occurs when prices have a simpler dichotomous distribution these results place pragmatically meaningful limitations on the influence of frequency information and illustrate the importance of context in determining consumer price judgments in a promotional environment

rational shopping behavior and the option value of variable pricing when a product s price fluctuates at a store how should rational cost minimizing shoppers shop for it specifically how frequently should they visit the store and how much of the product should they buy when they get there would this rational shopping behavior differ across every day low price edlp and promotional pricing hilo stores if shoppers are rational which retail price format is more profitable edlp or hilo to answer these questions we develop a normative model that shows how rational customers should shop when the price of the product is random we derive a closed form expression for the optimal purchasing policy and show that the optimal quantity to purchase under a given price scenario is linearly decreasing in the difference between the price under that scenario and the average price this purchase flexibility due to price variability has a direct impact on shopping frequency indeed the benefit of this purchase flexibility can be captured via an option value that implicitly reduces the fixed cost associated with each shopping trip consequently rational shoppers should shop more often and buy fewer units per trip when they face higher price variability our results suggest that if two stores charge the same average price for a product rational shoppers incur a lower level of expenditure at the store with a higher price variability since stores with different price variabilities coexist in practice we expect stores with higher price variability to charge a higher average price thus given two stores a higher relative mean price for a given item should be indicative of higher price variability and vice versa these model implications are tested using multicategory scanner panel data from 513 households and pricing data for three stores two edlp stores and one hilo store and 33 product categories over a two year period we find strong empirical support for the model implications

the effect of semantic cues on consumer perceptions of reference price ads this article examines the differential effects of two types of semantic cues 1 cues connoting that an advertised price discount exhibits low consistency over time and 2 cues connoting that an advertised discount is highly distinctive vis a vis competitors results suggest that for manipulations of external reference prices with offering price held constant semantic cues that connote high distinctiveness are more effective in influencing consumers price related evaluations when the external reference price is otherwise implausibly high than are semantic cues that connote low consistency for manipulations of offering prices with external reference price held constant however semantic cues connoting high distinctiveness exert more relative influence on price related cognitions when offering prices are high

reference prices and deception in newspaper advertising consumers were exposed to newspaper advertisements for four products and one of five different price representations regular price alone sale price alone regular price with manufacturer s suggested list price mslp sale price with regular price or sale price with mslp perceptions of the ordinary prices of the products were not affected by the presence or type of reference price but the subjects did have lower estimates of ordinary prices in the sale context the accuracy of consumer perceptions of ordinary prices was not related to the recency of subject shopping experience for the products as measured in the study

consumer perceptions of comparative price advertisements the authors analyze the issue of comparative price advertising from a behavioral perspective because public policy recognizes that comparative pricing may lead to consumer misperceptions the auth

comparing dynamic consumer choice in real and computer simulated environments actual supermarket purchases made by consumers over a seven month period are compared with the choice decisions collected in one sitting in a laboratory simulation the laboratory simulation was designed to mimic the original market environment although there were systematic biases in predictions of true purchase behavior from the simulated data the compressed simulations were reasonably valid in predicting market shares and promotion sensitivity for brands across consumers

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 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 product line extensions and consumer goals on the formation of price image abstract how do vertical product line extensions influence a retailer s price image conventional wisdom suggests that adding an upscale or downscale item to a product line has a directionally consistent impact on price image such that upscale extensions increase price image and downscale extensions decrease price image in contrast this research argues that vertical extensions can have the opposite effect such that upscale extensions can decrease rather than increase price image and vice versa for downscale extensions the authors further propose that the impact of vertical extensions on price image is a function of consumer goals and in particular whether consumers have the intent of browsing or buying the authors test these predictions in a series of five empirical studies that offer converging evidence in support of the proposed theory

an empirical analysis of internal and external reference prices using scanner data single source yogurt data are used to examine whether both internal and external reference prices affect purchase decisions internal reference prices are memory resident prices based on actual fair or other price concepts external reference prices are observed stimuli such as regular prices that stores may display along with a sale price for comparability discrete choice models with variables representing the two types of reference prices are estimated and both types of variables are found to have significant effects on purchase probabilities this suggests that consumers may use multiple reference points in evaluating price in purchase decisions in addition a model using an indicator of a sale price discount explains purchase probabilities as well as one that models the actual discount which suggests that consumers may be reacting to the indication of savings rather than to the amount of the discount

the influence of prior beliefs frequency cues and magnitude cues on consumers perceptions of comparative price data a widespread practice in grocery store advertising is to compare the advertised store s prices to a competitor s prices on multiple items an important but largely unexplored issue is how this information is processed and used in conjunction with prior beliefs to influence price perceptions in our initial studies we manipulated prior beliefs and two data based cues frequency of price advantage and magnitude of price advantage to determine their relative influence on consumer price perceptions results indicate that prior beliefs affected price perceptions but that the frequency cue exerted a dominating influence several follow up studies demonstrate the robustness of this phenomenon across a variety of presentational and instructional conditions

integration of serially sampled price information modeling and some findings focusing on the perceived value of an observed basket of items as the dependent variable the article suggests several rival models of integrating serially sampled price information within this context perceptual implications of different discount structures are noted also a computer controlled laboratory experiment is reported that attempts to provide guidance for subsequent studies that may compare the suggested models the results suggest that 1 store profile effects persist after exposure to price information 2 primacy effects are statistically significant but not strong and 3 a large number of noticeable discounts lead to a higher perceived value than a small number of extreme discounts

reference price and price perceptions a comparison of alternative models reference price effects on consumer price perceptions are often explained by helson s adaptation level theory in which the cognitive representation of reference price is the prototype of the relevant category however recent conceptualizations and empirical evidence suggest the possibility of an exemplar model which may be specified using volkmann s range theory or parducci s range frequency theory in two experiments these three contextual models of reference price effects are pitted against one another based on the manova and model fitting range frequency theory accounted for reference price effects that the other theories could not suggesting that consumers compare the target price against specific members of the category rather than the category prototype a third experiment demonstrated that range and frequency effects are moderated by the stimulus presentation condition suggesting that consumers place greater weight on extreme prices anchoring the range for internal reference prices than for external reference prices

the value of time spent in price comparison shopping survey and experimental evidence the value that consumers place on time spent in price comparison shopping is central to the economics of information theory and models of consumers search behavior yet few empirical studies have examined consumers subjective value of time building on gary becker s work this article presents two tests of a model of the subjective value of time in an effort to explain consumers subjective value of time while they are price comparison shopping the model introduces perceived enjoyment of shopping as a new explanatory variable the findings reveal that respondents incorporate both wage rates and perceived enjoyment of price comparison shopping into their subjective value of time

a consumer perspective on price matching refund policies effect on price perceptions and search behavior although price matching refund policies are common in many retail environments the impact of such policies on consumers has largely been ignored this article reports the results of three studies that examine price matching policies from a consumer perspective study 1 shows that consumers perceive price matching policies as signals of low store prices and that the presence of a refund increases the likelihood of discontinuing price search contrary to the predictions based on signaling theory in information economics studies 2 and 3 show that when search costs are low the number of stores searched increases in the presence versus absence of a price matching policy when search costs are high consumers appear to accept the price matching signal at face value and search less in the presence of a refund the article concludes by discussing the theoretical implications of the findings and suggesting directions for future research