An empirical test of theories of price valuation using a semiparametric approach, reference prices, and accounting for heterogeneity

Yasemin Boztug and Lutz Hildebrandt

No SFB649DP2005-057, SFB 649 Discussion Papers from Humboldt University, Collaborative Research Center 649

Abstract: In this paper we estimate and empirically test different behavioral theories of consumer reference price formation. Two major theories are proposed to model the reference price reaction: assimilation contrast theory and prospect theory. We assume that different consumer segments will use different reference prices. The study builds on earlier research by Kalyanaram and Little (1994); however, in contrast to their work, we use parametric and semiparametric approaches to detect the structure of the underlying data sets. The different models are tested using a program module in GAUSS that was able to account for heterogeneity. The model types were calibrated by a simulation study. The calibrated modules were then used to analyze real market data.

Keywords: price valuation; semiparametric approach; reference prices; heterogeneity (search for similar items in EconPapers)
JEL-codes: C14 C23 C25 D12 M31 (search for similar items in EconPapers)
Date: 2005-12
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