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A gereral test of reference price theory in the presence of threshold effects

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  • A. RamaN
  • F.M. Bass

Abstract

The theory of reference prices has great theoretica1 appeal and considerable managerial significance. This paper provides a test of reference price theory in a general setting allowing for threshold effects and asymmetric market response with respect to the threshold. The theory is rigorously evaluated on the basis of predictive tests using the methodology of switching regressions, and the empirical results show strong corroboration for it. The paper concludes witth a discussion of managerial implications of reference price theory for promotional and pricing strategy.

Suggested Citation

  • A. RamaN & F.M. Bass, 2002. "A gereral test of reference price theory in the presence of threshold effects," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(2), pages 205-226.
    • Handle: RePEc:ete:revbec:20020203
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    1. repec:hum:wpaper:sfb649dp2014-065 is not listed on IDEAS
    2. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    3. Shuba Srinivasan & Koen Pauwels & Dominique M. Hanssens & Marnik G. Dekimpe, 2004. "Do Promotions Benefit Manufacturers, Retailers, or Both?," Management Science, INFORMS, vol. 50(5), pages 617-629, May.
    4. Boztuğ, Yasemin & Hildebrandt, Lutz, 2005. "An empirical test of theories of price valuation using a semiparametric approach, reference prices, and accounting for heterogeneity," SFB 649 Discussion Papers 2005-057, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    5. repec:hum:wpaper:sfb649dp2005-057 is not listed on IDEAS
    6. Koen Pauwels & Shuba Srinivasan & Philip Hans Franses, 2007. "When Do Price Thresholds Matter in Retail Categories?," Marketing Science, INFORMS, vol. 26(1), pages 83-100, 01-02.
    7. Zhenyu Hu & Xin Chen & Peng Hu, 2016. "Technical Note—Dynamic Pricing with Gain-Seeking Reference Price Effects," Operations Research, INFORMS, vol. 64(1), pages 150-157, February.
    8. Hsiao-Ching Lee & Wei-Wei Chen & Chih-Wei Wang, 2015. "The role of visual art in enhancing perceived prestige of luxury brands," Marketing Letters, Springer, vol. 26(4), pages 593-606, December.
    9. Wei, Xiaohan & Chen, Xuqi & Gao, Zhifeng & Jensen, Kimberly L. & Yu, Tun-Hsiang & DeLong, Karen L., 2020. "The Reference Price Effect on Willingness-to-Pay Estimates: Evidence from Eco-labeled Food Products," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304573, Agricultural and Applied Economics Association.
    10. Zhang, Juan & Gou, Qinglong & Liang, Liang & Huang, Zhimin, 2013. "Supply chain coordination through cooperative advertising with reference price effect," Omega, Elsevier, vol. 41(2), pages 345-353.
    11. Sun, Shuxiao & Zheng, Xiaona & Sun, Luping, 2020. "Multi-period pricing in the presence of competition and social influence," International Journal of Production Economics, Elsevier, vol. 227(C).
    12. Nicolau, Juan L., 2011. "Differentiated price loss aversion in destination choice: The effect of tourists’ cultural interest," Tourism Management, Elsevier, vol. 32(5), pages 1186-1195.

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