Willingness to Pay-inference in the absence of rejected propositions

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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.

Original languageEnglish
Pages (from-to)35-42
Number of pages8
JournalJournal of Retailing and Consumer Services
Volume39
DOIs
Publication statusPublished - 2017

Keywords

  • Discrete choice
  • Shopping location
  • Willingness to Pay

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