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Modelling choice when price is a cue for quality: a case study with Chinese consumers

David Palma, Juan de Dios Ortúzar, Luis Ignacio Rizzi, Cristian Guevara, Gerard Casaubon and Huiqin Ma

Journal of choice modelling, 2016, vol. 19, issue C, 24-39

Abstract: Experience products are those the quality of which cannot be ascertained until after consumption, forcing consumers to base their purchase decision on an expectation of the product's quality. This expected quality is based on cues available before purchase, among which price is noteworthy, as consumers tend to believe that higher prices imply higher quality. But price also stresses the consumers' budget restriction, inducing a double -and conflicting- global effect on purchase probability. Using the traditional formulation of Random Utility Models for experience goods (i.e. introducing all attributes directly in the utility function) can lead to an endogeneity problem due to the omission of expected quality, introducing bias on the results.

Keywords: Endogeneity; Hybrid choice models; Latent variables; Experience good; Wine (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.jocm.2016.06.002

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