Consumer Risk-reduction Behavior and New Product Purchases

Posted: 18 Jan 2017

See all articles by Koichi Yonezawa

Koichi Yonezawa

Cornell University - Dyson School of Applied Economics and Management

Timothy J. Richards

Arizona State University (ASU) - Morrison School of Agribusiness and Resource Management

Date Written: January 12, 2017

Abstract

Consumers purchase lower quantities of new products compared to those they have purchased in the past. We explain this observation as a result of risk-averting behavior by utility-maximizing consumers. If a new product involves a higher degree of risk that quality expectations will not be met compared to an incumbent product, we show that utility will be more concave for the new product. We test this prediction using a multiple-discrete / continuous extreme value (MDCEV) model of demand. We show that utility is indeed more concave for new products relative to previously-purchased products.

Keywords: differentiated products, expected utility, multiple discrete, new products, risk

JEL Classification: C25, D81, L13, L66, M31

Suggested Citation

Yonezawa, Koichi and Richards, Timothy J., Consumer Risk-reduction Behavior and New Product Purchases (January 12, 2017). Available at SSRN: https://ssrn.com/abstract=2899072 or http://dx.doi.org/10.2139/ssrn.2899072

Koichi Yonezawa (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Timothy J. Richards

Arizona State University (ASU) - Morrison School of Agribusiness and Resource Management ( email )

7171 E. Sonoran Arroyo Mall
Mesa, AZ 85212
United States
480-727-1148 (Phone)

HOME PAGE: http://www.east.asu.edu/msabr/faculty/richards.htm

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