Bargains or Rip-offs? Reference Price Effects in Conjoint Stated Demand
By: Hu, Wuyang
Hu, Wuyang, Bargains or Rip-offs? Reference Price Effects in Conjoint Stated Demand, Journal of Agricultural and Resource Economics, Volume 32, Issue 2, August 2007, Pages 256-272
This study incorporates reference point effects into a stated choice survey of consumer demand for food with credence attributes. Parametric tests can be applied to the utility function to examine the existence of reference price effects. Results are consistent with prospect theory in that consumers exhibit strong and nonlinear reference price effects, with cheaper prices receiving less decision weight than higher prices. The underlying utility function is concave over lowered prices and convex over increased prices, with diminishing sensitivity in both domains. The study, however, did not find experience or consumers' attitudes to be significant in explaining reference price effects.