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Do consumers correctly expect price reductions? Testing dynamic behavior

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  • Philippe Février

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Lionel Wilner

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

The assumption that consumers are fully rational and hold correct price expectations is demanding in dynamic settings. We claim that it is testable provided that marketlevel data on prices and purchases are available. We find that consumers hold simple expectations regarding the timing of promotions for music albums: consumers act as if they were aware of reductions but did not revise their beliefs over time. The anticipation effect, due to strategically delaying purchase, amounts to 1/5 of the decision to purchase during regular periods. These results have implications in terms of demand estimation, optimal pricing and welfare computations.

Suggested Citation

  • Philippe Février & Lionel Wilner, 2016. "Do consumers correctly expect price reductions? Testing dynamic behavior," Post-Print hal-04799382, HAL.
    • Handle: RePEc:hal:journl:hal-04799382
    DOI: 10.1016/j.ijindorg.2015.10.003
    Note: View the original document on HAL open archive server: https://hal.science/hal-04799382v1
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    References listed on IDEAS

    as
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