Reference Dependence and Price Negotiations The Role of Advertised Reference Prices

2018 ◽  
Author(s):  
Pranav Jindal
Keyword(s):  
Reference Dependence ◽  
Reference Prices ◽  
Price Negotiations

scholarly journals EXPRESS: Perceived vs. Negotiated Discounts: The Role of Advertised Reference Prices in Price Negotiations

2021 ◽  
pp. 002224372110344
Author(s):  
Pranav Jindal
Keyword(s):  
Decision Making ◽  
Reference Price ◽  
Durable Goods ◽  
Purchase Decisions ◽  
Lab Experiment ◽  
Multiple Products ◽  
Reference Prices ◽  
Price Negotiations ◽  
Posted Price

Retailers routinely present a posted price together with a higher advertised reference price, in an effort to evoke a perception of the discount the consumer is receiving. If prices can be negotiated though, what impact does this initial perceived discount (IPD) have on the ultimate discount, demand, and revenue? With data from consumers of a large durable goods retailer, in a natural decision-making environment, this study provides evidence that a greater IPD is associated with smaller negotiated discounts. Then, a lab experiment involving negotiation and purchase decisions for multiple products, with randomly assigned values of the IPD, establishes that a $1 increase in IPD lowers the negotiated discount by 4.7 cents. Furthermore, 75% of this decrease can be attributed to reduction in the participants' likelihood to initiate a negotiation. Under bargaining, almost half of the increase in revenue from a higher IPD stems from an increase in the negotiated price, which is unlike fixed pricing, in which setting an increase in IPD affects revenue only through changes in demand. Sellers also have a greater incentive to set exaggerated advertised reference prices in bargaining contexts, compared with fixed pricing. These findings in turn have implications for researchers, retailers, and consumers.

scholarly journals Willing to Pay More, Eager to Pay Less: The Role of Customer Loyalty in Price Negotiations

2014 ◽  
Vol 78 (6) ◽  
pp. 17-37 ◽  
Author(s):  
Jan Wieseke ◽  
Sascha Alavi ◽  
Johannes Habel
Keyword(s):  
Customer Loyalty ◽  
Price Negotiations

scholarly journals When Internal Reference Prices and Price Expectations Diverge: The Role of Confidence

2007 ◽  
Vol 44 (3) ◽  
pp. 401-409 ◽  
Author(s):  
Manoj Thomas ◽  
Geeta Menon
Keyword(s):  
Reference Price ◽  
Internal Reference ◽  
Price Expectations ◽  
Price Expectation ◽  
Reference Prices ◽  
Internal Reference Price ◽  
Pricing Theory

When do internal reference prices differ from articulated price expectations? The authors propose that the internal reference price depends not only on the magnitude of the expected price but also on the confidence associated with this expectation. Four experiments delineate the effects of price expectation and confidence on the internal reference price. In Experiments 1 and 2, the authors manipulate repetition and examine the effects of repetition-induced confidence on price judgments. In Experiments 3 and 4, they manipulate confidence directly to investigate its effects on judgments. The results from all four experiments suggest that consumers with less confidence have higher internal reference prices than more confident consumers, even when they do not differ in their articulated price expectations. The authors discuss the implications of these results for pricing theory.

The Role of Advance Purchasing Commitments in Government Drug Price Negotiations: Lessons From the COVID-19 Response

2021 ◽  
pp. e1-e6
Author(s):  
Mariana P. Socal ◽  
Gerard F. Anderson
Keyword(s):  
Federal Government ◽  
House Of Representatives ◽  
Good Faith ◽  
Drug Costs ◽  
Recent Proposal ◽  
The Us ◽  
Lower Drug ◽  
Price Negotiations ◽  
Prescription Drug Costs

Among the various approaches to address rising prescription drug costs, one option is to allow the federal government to negotiate prices directly with drug manufacturers. Debates over the appropriate negotiating approach have occurred on several dimensions,1 including the number of drugs eligible for negotiation, the levers that would be implemented to obtain lower prices, the incentives necessary to ensure that all parties negotiate in good faith, and what specific populations should have access to the negotiated price. In 2019, the US House of Representatives passed the most recent proposal to allow the federal government to negotiate prices—H.R.3, The Elijah E. Cummings Lower Drug Costs Now Act—reflecting policy decisions on many of these issues.2 (Am J Public Health. Published online ahead of print January 28, 2021: e1–e6. https://doi.org/10.2105/AJPH.2020.306109 )

Litigants’ Behavior

2018 ◽  
Author(s):  
Eyal Zamir ◽  
Doron Teichman
Keyword(s):  
Economic Analysis ◽  
Dispute Resolution ◽  
Loss Aversion ◽  
Alternative Dispute Resolution ◽  
Plea Bargaining ◽  
Reference Dependence ◽  
Criminal Proceedings ◽  
Behavioral Phenomena

This chapter begins with a brief overview of the standard economic analysis of litigation and settlement. It then analyzes a series of behavioral impediments to settlement. These include self-serving biases, overoptimism, non-pecuniary motivations, biases stemming from the adversarial nature of litigation, reference-dependence in assessing settlement offers, and the framing of litigation outcomes. The chapter then points to two behavioral phenomena—regret avoidance and loss aversion—that strongly encourage settlements. The chapter looks at behavioral explanations for the relatively limited use of alternative dispute resolution mechanisms. It also takes a closer look at the role of lawyers and client-lawyer relationships. Finally, it highlights the behavioral contribution to the understanding of plea bargaining in criminal proceedings.

Assimilation of advertised reference prices: the moderating role of involvement

2003 ◽  
Vol 79 (1) ◽  
pp. 53-62 ◽  
Author(s):  
Rajesh Chandrashekaran ◽  
Dhruv Grewal
Keyword(s):  
Reference Prices ◽  
Moderating Role

Reference-Dependence Effects in Benefit Assessment: Beyond the WTA–WTP Dichotomy and WTA–WTP Ratios

2015 ◽  
Vol 6 (1) ◽  
pp. 187-206 ◽  
Author(s):  
W. Kip Viscusi
Keyword(s):  
Water Quality ◽  
Labor Market ◽  
Experimental Evidence ◽  
Empirical Evidence ◽  
Reference Point ◽  
Willingness To Accept ◽  
Reference Dependence ◽  
Statistical Life ◽  
The Cost

Willingness-to-pay (WTP) values and willingness-to-accept (WTA) values have received considerable attention, but the role of reference-dependence effects is more diverse. Policies involving cost and risk may have reference point effects with respect to both cost and risk, leading to four potential valuation measures. Experimental evidence for water quality policies suggests that the cost reference effects are particularly influential in that context. There is, however, no evidence of significant reference effects for labor market estimates of the value of a statistical life. Sound application of benefit values other than WTP measures requires pertinent empirical evidence and an assessment of the underlying rationality of the determinants of the reference-dependence effects.

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