Price as an Indicator of Quality: Implications for Utility and Demand Functions

Min Ding, William T. Ross, Vithala R. Rao

Research output: Contribution to journalArticle

32 Scopus citations

Abstract

Consumers often infer quality information from prices and rely on their reference prices. This paper incorporates both behavioral regularities into the classic utility function. The analytical investigation reveals five qualitatively different types of consumers, three of which are relatively new to modeling literature. The authors test the model's theoretical insights using a new experimental method, random allocation of scarce inventories (RASI), which is designed to align people's incentives, such that they state their true rank order preferences. The results support the existence of five different types of consumers; the authors discuss the managerial implications for pricing strategies.

Original languageEnglish (US)
Pages (from-to)69-84
Number of pages16
JournalJournal of Retailing
Volume86
Issue number1
DOIs
StatePublished - Mar 1 2010

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All Science Journal Classification (ASJC) codes

  • Marketing

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