Do consumers correctly expect price reductions? Testing dynamic behavior

Philippe Février () and Lionel Wilner
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Philippe Février: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: The assumption that consumers are fully rational and hold correct price expectations is demanding in dynamic settings. We claim that it is testable provided that marketlevel data on prices and purchases are available. We find that consumers hold simple expectations regarding the timing of promotions for music albums: consumers act as if they were aware of reductions but did not revise their beliefs over time. The anticipation effect, due to strategically delaying purchase, amounts to 1/5 of the decision to purchase during regular periods. These results have implications in terms of demand estimation, optimal pricing and welfare computations.

Keywords: Testing expectations; demand models; promotions; perfect foresight; myopia; time-independent beliefs (search for similar items in EconPapers)
Date: 2016-01
Note: View the original document on HAL open archive server: https://hal.science/hal-04799382v1
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Published in International Journal of Industrial Organization, 2016, 44, pp.25-40. ⟨10.1016/j.ijindorg.2015.10.003⟩

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Related works:
Journal Article: Do consumers correctly expect price reductions? Testing dynamic behavior (2016)
Working Paper: Do Consumers Correctly Expect Price Reductions? Testing Dynamic Behavior (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04799382

DOI: 10.1016/j.ijindorg.2015.10.003

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