SSRN Home Search and Download Papers Browse Abstract and Paper Submission Subscribe to Networks View Briefcase Top Papers Top Authors Top Institutions

 

Abstract

 
 

References (31)

Beta

 


 


Download | Share | Email | Add to Briefcase | Buy Hard Copy

How Large Are Non-Budget-Constraint Effects of Prices on Demand?

Ori Heffetz
Cornell University - S.C. Johnson Graduate School of Management

Moses Shayo
Hebrew University of Jerusalem - Department of Economics


March 19, 2009

Johnson School Research Paper Series No. 9-08

Abstract:     
Elementary consumer theory assumes that prices affect demand only because they affect the budget constraint (BC). By contrast, several models suggest that prices can affect demand through other channels (e.g. because they signal quality). This alternative conjecture is consistent with evidence from marketing studies. However, neither theory nor evidence is informative regarding the magnitude of non-BC effects. The key econometric challenge arises from the fact that a change in prices typically also changes the BC. This paper uses a lab and a field experiment to disentangle BC from non-BC effects of prices on demand. In our lab experiment we find that, consistent with marketing evidence, prices positively affect stated willingness to pay. However, when examining actual demand, non-BC price elasticities are considerably smaller than BC price elasticities and are often statistically insignificant. Further, these non-BC elasticities do not increase with product uncertainty. Finally, we do not detect any non-BC effects in our field experiment.

Keywords: consumer behavior, demand, price, quality signals, experiments

JEL Classifications: D01, D12, D8, M31

Working Paper Series

Date posted: May 16, 2008 ; Last revised: March 24, 2009

Suggested Citation

Heffetz, Ori and Shayo , Moses, How Large Are Non-Budget-Constraint Effects of Prices on Demand? (March 19, 2009). Johnson School Research Paper Series No. 9-08. Available at SSRN: http://ssrn.com/abstract=1133342


Export to: Export Citation What's this?

Contact Information

Moses Shayo (Contact Author)
Hebrew University of Jerusalem - Department of Economics ( email )
Mount Scopus
Jerusalem Israel
Ori Heffetz
Cornell University - S.C. Johnson Graduate School of Management ( email )
324 Sage Hall
Ithaca, NY 14853
United States
607.255.4668 (Phone)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/heffetz/
Feedback to SSRN (Beta)


Paper statistics
Abstract Views: 1,119
Downloads: 218
Download Rank: 38,961
References: 31

© 2009 Social Science Electronic Publishing, Inc. All Rights Reserved. Terms of Use  Privacy Policy
This page was served by apollo2 in 0.141 seconds.