How Large Are Non-Budget-Constraint Effects of Prices on Demand?

Ori Heffetz and Moses Shayo

American Economic Journal: Applied Economics, 2009, vol. 1, issue 4, 170-99

Abstract: Elementary consumer theory assumes prices affect demand only because they affect the budget constraint (BC). Alternative models, and some evidence, suggest prices can affect demand through other, non-BC channels (e.g., by signaling quality). This paper uses a lab and a field experiment to disentangle BC from non-BC effects of prices on demand. In the lab, we find that although prices positively affect stated willingness to pay, non-BC price elasticities are considerably smaller than BC price elasticities, are often statistically insignificant, and do not increase with product uncertainty. We do not detect any non-BC effects in our field experiment. (JEL C93, D12, M31)

JEL-codes: C93 D12 M31 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/app.1.4.170
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: HOW LARGE ARE NON-BUDGET-CONSTRAINT EFFECTS OF PRICES ON DEMAND? (2009)
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