Willingness to Pay-inference in the absence of rejected propositions

Sander van Cranenburgh and Caspar Chorus

Journal of Retailing and Consumer Services, 2017, vol. 39, issue C, 35-42

Abstract: This paper presents a method to infer a Willingness to Pay (WtP) distribution based on a sample of observations of individuals who pay a particular price for a particular quality increase. Crucially, no observations are available of individuals who reject a higher price/higher quality proposition, and choose a lower price/lower quality alternative instead. While at first sight it may seem impossible to infer a WtP distribution in the absence of such rejected propositions, we show that this is possible under the assumption that there is a certain degree of alignment of supply (of propositions) and demand (WtP) in the market. The method is Maximum Likelihood-based, and easy to implement. The method is shown to have a promising empirical performance on a synthetic dataset and a dataset of revealed shopping destination choices.

Keywords: Willingness to Pay; Discrete choice; Shopping location (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joreco:v:39:y:2017:i:c:p:35-42

DOI: 10.1016/j.jretconser.2017.07.001

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