IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v30y2009i6p351-371.html
   My bibliography  Save this article

Similarities and differences between stockpiling and reference effects

Author

Listed:
  • Robert Slonim

    (Discipline of Economics, Faculty of Economics and Business, University of Sydney, Sydney, Australia)

  • Ellen Garbarino

    (Discipline of Marketing, Faculty of Economics and Business, University of Sydney, Sydney, Australia)

Abstract

The correlation of past prices and demand is commonly attributed to reference effects. Although reference dependence is robust, support for loss aversion is mixed; some find demand more sensitive to price increases, consistent with loss aversion, others find no difference or greater sensitivity to price decreases. Stockpiling offers an explanation for these mixed findings. Combining theory, analytical models and simulations, stockpiling and reference dependence predict similar effects and the more stockable the product, the greater sensitivity of demand to price decreases, the opposite of loss aversion. We show that a model combining stockpiling and reference effects best aligns with previous findings and under what conditions each effect should dominate. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Robert Slonim & Ellen Garbarino, 2009. "Similarities and differences between stockpiling and reference effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 351-371.
    • Handle: RePEc:wly:mgtdec:v:30:y:2009:i:6:p:351-371
    DOI: 10.1002/mde.1453
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1002/mde.1453
    File Function: Link to full text; subscription required
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.1453?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. João L. Assunção & Robert J. Meyer, 1993. "The Rational Effect of Price Promotions on Sales and Consumption," Management Science, INFORMS, vol. 39(5), pages 517-535, May.
    2. Mayhew, Glenn E & Winer, Russell S, 1992. "An Empirical Analysis of Internal and External Reference Prices Using Scanner Data," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 19(1), pages 62-70, June.
    3. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-1130, December.
    4. Briesch, Richard A, et al, 1997. "A Comparative Analysis of Reference Price Models," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 24(2), pages 202-214, September.
    5. David R. Bell & Jeongwen Chiang & V. Padmanabhan, 1999. "The Decomposition of Promotional Response: An Empirical Generalization," Marketing Science, INFORMS, vol. 18(4), pages 504-526.
    6. Scott A. Neslin & Caroline Henderson & John Quelch, 1985. "Consumer Promotions and the Acceleration of Product Purchases," Marketing Science, INFORMS, vol. 4(2), pages 147-165.
    7. Eric A. Greenleaf, 1995. "The Impact of Reference Price Effects on the Profitability of Price Promotions," Marketing Science, INFORMS, vol. 14(1), pages 82-104.
    8. Krishnamurthi, Lakshman & Mazumdar, Tridib & Raj, S P, 1992. "Asymmetric Response to Price in Consumer Brand Choice and Purchase Quantity Decisions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 19(3), pages 387-400, December.
    9. Robert J. Meyer & João Assunção, 1990. "The Optimality of Consumer Stockpiling Strategies," Marketing Science, INFORMS, vol. 9(1), pages 18-41.
    10. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    11. Kalyanaram, Gurumurthy & Little, John D C, 1994. "An Empirical Analysis of Latitude of Price Acceptance in Consumer Package Goods," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 21(3), pages 408-418, December.
    12. Daniel S. Putler, 1992. "Incorporating Reference Price Effects into a Theory of Consumer Choice," Marketing Science, INFORMS, vol. 11(3), pages 287-309.
    13. Gerard J. Tellis & Fred S. Zufryden, 1995. "Tackling the Retailer Decision Maze: Which Brands to Discount, How Much, When and Why?," Marketing Science, INFORMS, vol. 14(3), pages 271-299.
    14. Kwangpil Chang & S. Siddarth & Charles B. Weinberg, 1999. "The Impact of Heterogeneity in Purchase Timing and Price Responsiveness on Estimates of Sticker Shock Effects," Marketing Science, INFORMS, vol. 18(2), pages 178-192.
    15. Gurumurthy Kalyanaram & Russell S. Winer, 1995. "Empirical Generalizations from Reference Price Research," Marketing Science, INFORMS, vol. 14(3_supplem), pages 161-169.
    16. Bruce G. S. Hardie & Eric J. Johnson & Peter S. Fader, 1993. "Modeling Loss Aversion and Reference Dependence Effects on Brand Choice," Marketing Science, INFORMS, vol. 12(4), pages 378-394.
    17. David R. Bell & James M. Lattin, 2000. "Looking for Loss Aversion in Scanner Panel Data: The Confounding Effect of Price Response Heterogeneity," Marketing Science, INFORMS, vol. 19(2), pages 185-200, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Loy, Jens-Peter & Weiss, Christoph R. & Glauben, Thomas, 2016. "Asymmetric cost pass-through? Empirical evidence on the role of market power, search and menu costs," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 184-192.
    2. Xin Chen & Peng Hu & Zhenyu Hu, 2017. "Efficient Algorithms for the Dynamic Pricing Problem with Reference Price Effect," Management Science, INFORMS, vol. 63(12), pages 4389-4406, December.
    3. Zhenyu Hu & Javad Nasiry, 2018. "Are Markets with Loss-Averse Consumers More Sensitive to Losses?," Management Science, INFORMS, vol. 64(3), pages 1384-1395, March.
    4. Biondi, Beatrice & Cornelsen, Laura & Mazzocchi, Mario & Smith, Richard, 2020. "Between preferences and references: Asymmetric price elasticities and the simulation of fiscal policies," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 108-128.
    5. Braut, Beatrice & Migheli, Matteo & Truant, Elisa, 2022. "Food consumption changes during 2020 lockdown in Italy," Research in Economics, Elsevier, vol. 76(2), pages 107-119.
    6. von Cramon-Taubadel, Stephan, 2021. "Vertikale Preisbeziehungen - Beziehungen zwischen Erzeuger- und Verbraucherpreisen," IAMO Discussion Papers 310088, Institute of Agricultural Development in Transition Economies (IAMO).
    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. Tülin Erdem & Michael Katz & Baohong Sun, 2010. "A simple test for distinguishing between internal reference price theories," Quantitative Marketing and Economics (QME), Springer, vol. 8(3), pages 303-332, September.
    9. Philipp Aschersleben & Winfried J. Steiner, 2022. "A semiparametric approach to estimating reference price effects in sales response models," Journal of Business Economics, Springer, vol. 92(4), pages 591-643, May.
    10. repec:zbw:iamodp:310088 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kopalle, Praveen K. & Kannan, P.K. & Boldt, Lin Bao & Arora, Neeraj, 2012. "The impact of household level heterogeneity in reference price effects on optimal retailer pricing policies," Journal of Retailing, Elsevier, vol. 88(1), pages 102-114.
    2. van Oest, Rutger, 2013. "Why are Consumers Less Loss Averse in Internal than External Reference Prices?," Journal of Retailing, Elsevier, vol. 89(1), pages 62-71.
    3. David R. Bell & James M. Lattin, 2000. "Looking for Loss Aversion in Scanner Panel Data: The Confounding Effect of Price Response Heterogeneity," Marketing Science, INFORMS, vol. 19(2), pages 185-200, May.
    4. Neumann, Nico & Böckenholt, Ulf, 2014. "A Meta-analysis of Loss Aversion in Product Choice," Journal of Retailing, Elsevier, vol. 90(2), pages 182-197.
    5. 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.
    6. Dmitri Kuksov & Kangkang Wang, 2014. "The Bright Side of Loss Aversion in Dynamic and Competitive Markets," Marketing Science, INFORMS, vol. 33(5), pages 693-711, September.
    7. Nobuhiko Terui & Wirawan Dony Dahana, 2006. "Research Note—Estimating Heterogeneous Price Thresholds," Marketing Science, INFORMS, vol. 25(4), pages 384-391, 07-08.
    8. 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.
    9. Lillian L. Cheng & Kent B. Monroe, 2013. "An appraisal of behavioral price research (part 1): price as a physical stimulus," AMS Review, Springer;Academy of Marketing Science, vol. 3(3), pages 103-129, September.
    10. Sojin Jung & Hyeon Jeong Cho & Byoungho Ellie Jin, 2020. "Does effective cost transparency increase price fairness? An analysis of apparel brand strategies," Journal of Brand Management, Palgrave Macmillan, vol. 27(5), pages 495-507, September.
    11. Vincenzina Caputo & Jayson L Lusk & Rodolfo M Nayga, 2020. "Am I Getting a Good Deal? Reference‐DependentDecision Making When the Reference Price Is Uncertain," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(1), pages 132-153, January.
    12. Prakash, David & Spann, Martin, 2022. "Dynamic pricing and reference price effects," Journal of Business Research, Elsevier, vol. 152(C), pages 300-314.
    13. Sojin Jung & Hyeon Jeong Cho & Byoungho Ellie Jin, 0. "Does effective cost transparency increase price fairness? An analysis of apparel brand strategies," Journal of Brand Management, Palgrave Macmillan, vol. 0, pages 1-13.
    14. repec:hum:wpaper:sfb649dp2014-065 is not listed on IDEAS
    15. Biondi, Beatrice & Cornelsen, Laura & Mazzocchi, Mario & Smith, Richard, 2020. "Between preferences and references: Asymmetric price elasticities and the simulation of fiscal policies," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 108-128.
    16. Necati Tereyağoğlu & Peter S. Fader & Senthil Veeraraghavan, 2018. "Multiattribute Loss Aversion and Reference Dependence: Evidence from the Performing Arts Industry," Management Science, INFORMS, vol. 64(1), pages 421-436, January.
    17. repec:hum:wpaper:sfb649dp2005-057 is not listed on IDEAS
    18. Friesen, Mark, 2020. "A dynamic perspective on consumers’ price fairness perception: Empirical evidence from the airline industry," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 74(4), pages 403-425.
    19. Colombo, Luca & Labrecciosa, Paola, 2021. "Dynamic oligopoly pricing with reference-price effects," European Journal of Operational Research, Elsevier, vol. 288(3), pages 1006-1016.
    20. Yuval Arbel & Danny Ben-Shahar & Stuart Gabriel, 2016. "Are The Disabled Less Loss Averse? Evidence From A Natural Policy Experiment," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1291-1318, April.
    21. Meloria Meschi & Carla Pace, 2012. "Accounting for Behavioral Biases for Non-biased Demand Estimations," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Multi-Modal Competition and the Future of Mail, chapter 24, Edward Elgar Publishing.
    22. Toshiaki Iizuka & Hitoshi Shigeoka, 2020. "Asymmetric Demand Response when Prices Increase and Decrease: The Case of Child Healthcare," NBER Working Papers 28057, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:30:y:2009:i:6:p:351-371. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.