How Large Are Non-Budget-Constraint Effects of Prices on Demand?
- (pp. 170-99)
AbstractElementary 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)
Citation2009. "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
- C93 Field Experiments
- D12 Consumer Economics: Empirical Analysis
- M31 Marketing