Consumer price effects: Loss aversion in value vs. in demand

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Kallio , M , Halme , M & Aspara , J 2019 , ' Consumer price effects: Loss aversion in value vs. in demand ' , Journal of the Operational Research Society . https://doi.org/10.1080/01605682.2019.1609884

Title: Consumer price effects: Loss aversion in value vs. in demand
Author: Kallio, Markku; Halme, Merja; Aspara, Jaakko
Contributor: Hanken School of Economics, Marketing, Helsinki
Belongs to series: Journal of the Operational Research Society
ISSN: 0160-5682
Abstract: It has been established that consumers are often loss averse in the sense that perceived value decreases to a greater extent as a result of a price increase than what it increases as a result of an equal price decrease. We examine a previously scarcely studied question: how is the change in a product’s perceived value following a price change reflected in the product’s market demand? To complement the notion of loss averse (vs. gain seeking) price behaviour in perceived value, we provide a definition for loss averse (vs. gain seeking) price behaviour in demand. We discover that loss aversion in value does not necessarily lead to loss averse market demand, but can also lead to market demand being gain-seeking. We examine the boundary conditions for loss averse vs. gain seeking demand. Assuming that consumer preferences are given by a random utility model and the choice model is McFadden’s conditional logit, we develop a simple formula to check the character of the price behaviour. This provides novel insights by revealing an unexpected key determinant: the market share of the product under consideration. Finally, we consider the optimal price changes and what kind of consumer behaviour in demand they are related to.
Date: 2019-07-25
Subject: Marketing Effectiveness and Profitability
512 Business and Management
Reference price
loss aversion
conditional logit
brand choice
KOTA2019
PREM2019_08
0 - Not open access
1 - Self archived
https://helda.helsinki.fi/dhanken/handle/10227/392982
0- Ingen av författarna har en utländsk affiliation
1- Publicerad utomlands
0- Ingen affiliation med ett företag
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