Willingness to pay explained
In behavioral economics, willingness to pay (WTP) is the maximum price at or below which a consumer will definitely buy one unit of a product.[1] This corresponds to the standard economic view of a consumer reservation price. Some researchers, however, conceptualize WTP as a range.
According to the constructed preference view, consumer willingness to pay is a context-sensitive construct; that is, a consumer's WTP for a product depends on the concrete decision context. For example, consumers tend to be willing to pay more for a soft drink in a luxury hotel resort in comparison to a beach bar or a local retail store.
Experimental context
In laboratory experiments auctions are conducted, a premise of the experiment is often that "bid = WTP".[2]
See also
Further reading
- Anderson, James C., Dipak Jain, and Pradeep K. Chintagunta (1993), "Understanding Customer Value in Business Markets: Methods of Customer Value Assessment," Journal of Business-to-Business Marketing, 1 (1), 3–30.
- Breidert Christoph, Hahsler, Michael, and Reutterer (2006), "A Review of Methods for Measuring Willingness-to-Pay", Innovative Marketing, 2(4), 8–32.
- Miller, Klaus M., Hofstetter, Reto, Krohmer, Harley, Zhang, John Z. (2011), "How Should Consumers' Willingness to Pay be Measured? An Empirical Comparison of State-of-the-Art Approaches", Journal of Marketing Research.
- Wertenbroch, Klaus and Bernd Skiera (2002), "Measuring Consumers' Willingness to Pay at the Point of Purchase," Journal of Marketing Research, 39 (May), 228–41.
Notes and References
- Varian, Hal R. (1992), Microeconomic Analysis, Vol. 3. New York: W. W. Norton.
- Do price-tags influence consumers’ willingness to pay? On the external validity of using auctions for measuring value Article. Experimental Economics. May 2011. 10.1007/s10683-010-9262-4. Bernard Ruffieux. Laurent Muller.
