American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
How Large Are Non-Budget-Constraint Effects of Prices on Demand?
American Economic Journal: Applied Economics
vol. 1,
no. 4, October 2009
(pp. 170–99)
(Complimentary)
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)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.1.4.170Additional Materials
JEL Classification
- C93 Field Experiments
- D12 Consumer Economics: Empirical Analysis
- M31 Marketing
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