Article ID Journal Published Year Pages File Type
5077918 International Journal of Industrial Organization 2016 16 Pages PDF
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 market-level 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.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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