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Choice behavior of information services when prices are increased and decreased from reference level

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  • Merja Halme
  • Outi Somervuori

Abstract

The purpose of this study is to estimate the impact of price increases and decreases for three, at least partly, compensatory services. The existence of a reference effect in pricing has been commonly accepted. However, the observations of consumer choices with prices below and above the reference price have produced mixed results. Both symmetric and asymmetric behavior has been observed. The current study differs from the mainstream in the way that the object is a service and instead of scanner panel data, stated preferences measured by choice based conjoint analysis are used. Moreover, instead of dealing with changes in value caused by price changes, we consider changes in demand on the respondent level. The main outcome of the study was that with the traditional service the respondents reacted more strongly to price increases (loss) than to price decreases (gain), whereas in the two more modern services the reactions were more versatile; with the majority of respondents the reactions were stronger to price decreases (gain). Copyright Springer Science+Business Media New York 2013

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  • Merja Halme & Outi Somervuori, 2013. "Choice behavior of information services when prices are increased and decreased from reference level," Annals of Operations Research, Springer, vol. 211(1), pages 549-564, December.
    • Handle: RePEc:spr:annopr:v:211:y:2013:i:1:p:549-564:10.1007/s10479-013-1350-3
    DOI: 10.1007/s10479-013-1350-3
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