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American Economic Journal: Applied Economics: Vol. 1 No. 4 (October 2009)
AEJ: Applied Volume. 1, Issue 4 | 
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AEJ: Applied Forthcoming Articles
How Large Are Non-Budget-Constraint Effects of Prices on Demand?
Article Citation
Heffetz, Ori, and
Moses Shayo. 2009. "How Large Are Non-Budget-Constraint Effects of Prices on Demand?."
American Economic Journal: Applied Economics,
1(4): 170-99.
DOI: 10.1257/app.1.4.170
DOI: 10.1257/app.1.4.170
Abstract
Elementary consumer theory assumes prices affect demand only
because they affect the budget constraint (BC). Alternative models,
and some evidence, suggest prices can affect demand through other,
non-BC channels (e.g., by signaling quality). This paper uses a lab
and a field experiment to disentangle BC from non-BC effects of
prices on demand. In the lab, we find that although prices positively
affect stated willingness to pay, non-BC price elasticities are considerably
smaller than BC price elasticities, are often statistically
insignificant, and do not increase with product uncertainty. We do
not detect any non-BC effects in our field experiment. (JEL C93,
D12, M31)
Article Full-Text Access
Full-text Article (Complimentary)
Additional Materials
Download Data Set (33.40 KB) | Online Appendix (105.86 KB)
Authors
Heffetz, Ori (Cornell U)
Shayo, Moses (Hebrew U Jerusalem)
Shayo, Moses (Hebrew U Jerusalem)
JEL Classifications
C93: Field Experiments
D12: Consumer Economics: Empirical Analysis
M31: Marketing
D12: Consumer Economics: Empirical Analysis
M31: Marketing
Comments
View Comments on This Article (1) | Login to post a comment
Posted By: Ori Heffetz (Cornell University)
Date: 2010-03-16 16:59:03
Links to press coverage
New York Times,
Psychology Today,
Inc. Magazine,