Demand cross elasticity without substitutability: An experiment
AbstractWe study a market in which goods are produced under low marginal costs with a poor degree of substitutability among products. In this environment we ran an experiment to explain why prices are interdependent even when preferences are independent. We compare our results to previous theoretical and laboratory experimental literature on price fairness. We find that even in the absence of interaction among subjects, price fairness/unfairness does play a major role in the decision to accept or reject a deal. Subjects tend to be more resistant to a price increase and reject a deal when the preferred product is not referenced to price increases of not substitute products, if these products are considered to be a benchmark for fair conduct. Thus demand cross elasticity can arise between products that are not substitutes. This result has important implications for antitrust policy. In delineating a market perimeter, fairness concerns suggest that products that are similar but not interchangeable should be included in the relevant antitrust market.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal The Journal of Socio-Economics.
Volume (Year): 41 (2012)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620175
Demand cross elasticity; Price reference; Unfairness; Antitrust relevant market;
Find related papers by JEL classification:
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
- Laurence Ball & N. Gregory Mankiw, 1995.
"A Sticky-Price Manifesto,"
NBER Working Papers
4677, National Bureau of Economic Research, Inc.
- Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
- Laurence Ball & N. Gregory Mankiw, 1994. "A sticky-price manifesto," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
- Alba, Joseph W, et al, 1994. " The Influence of Prior Beliefs, Frequency Cues, and Magnitude Cues on Consumers' Perceptions of Comparative Price Data," Journal of Consumer Research, University of Chicago Press, vol. 21(2), pages 219-35, September.
- Julio J. Rotemberg, 2004.
NBER Working Papers
10915, National Bureau of Economic Research, Inc.
- Ben Shiller & Joel Waldfogel, 2011. "Music for a Song: An Empirical Look at Uniform Pricing and Its Alternatives," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 630-660, December.
- Praveen K. Kopalle & Ambar G. Rao & João L. Assunção, 1996. "Asymmetric Reference Price Effects and Dynamic Pricing Policies," Marketing Science, INFORMS, vol. 15(1), pages 60-85.
- Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S285-300, October.
- Lichtenstein, Donald R & Bearden, William O, 1989. " Contextual Influences on Perceptions of Merchant-Supplied Reference Prices," Journal of Consumer Research, University of Chicago Press, vol. 16(1), pages 55-66, June.
- Pierluigi Sabbatini, 2008. "Assessing the Impact of Antitrust Intervention by the Italian Competition Authority," De Economist, Springer, vol. 156(4), pages 491-505, December.
- Frey, Bruno S. & Pommerehne, Werner W., 1993. "On the fairness of pricing -- An empirical survey among the general population," Journal of Economic Behavior & Organization, Elsevier, vol. 20(3), pages 295-307, April.
- Daskalopoulou, Irene, 2008. "Fairness perceptions and observed consumer behavior: Results of a partial observability model," The Journal of Socio-Economics, Elsevier, vol. 37(1), pages 31-44, February.
- Richard H. Thaler, 2008.
"Mental Accounting and Consumer Choice,"
INFORMS, vol. 27(1), pages 15-25, 01-02.
- Erik Brynjolfsson & Michael D. Smith, 2000.
"Frictionless Commerce? A Comparison of Internet and Conventional Retailers,"
INFORMS, vol. 46(4), pages 563-585, April.
- Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
- Utpal M. Dholakia & Itamar Simonson, 2005. "The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior," Marketing Science, INFORMS, vol. 24(2), pages 206-217, October.
- Brown, Thomas C., 2005. "Loss aversion without the endowment effect, and other explanations for the WTA-WTP disparity," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 367-379, July.
- Briesch, Richard A, et al, 1997. " A Comparative Analysis of Reference Price Models," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 202-14, September.
- Bruno S. Frey & Beat Gygi, 1988. "Die Fairness von Preisen," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 124(IV), pages 519-541, December.
- Barry Sopher & Edi Karni & Tim Salmon, 2001.
"Individual Sense of Fairness: An Experimental Study,"
Departmental Working Papers
200107, Rutgers University, Department of Economics.
- Edi Karni & Tim Salmon & Barry Sopher, 2008. "Individual sense of fairness: an experimental study," Experimental Economics, Springer, vol. 11(2), pages 174-189, June.
- Franciosi, Robert, et al, 1995. "Fairness: Effect on Temporary and Equilibrium Prices in Posted-Offer Markets," Economic Journal, Royal Economic Society, vol. 105(431), pages 938-50, July.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Bolton, Lisa E & Warlop, Luk & Alba, Joseph W, 2003. " Consumer Perceptions of Price (Un)Fairness," Journal of Consumer Research, University of Chicago Press, vol. 29(4), pages 474-91, March.
- Smith, Vernon L., 2005. "Behavioral economics research and the foundations of economics," The Journal of Socio-Economics, Elsevier, vol. 34(2), pages 135-150, March.
- Bolton, LE & Warlop, Luk & Alba, JW, 2003. "Consumer perceptions of price (un)fairness," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101228, Katholieke Universiteit Leuven.
- Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, November.
- Daniel S. Putler, 1992. "Incorporating Reference Price Effects into a Theory of Consumer Choice," Marketing Science, INFORMS, vol. 11(3), pages 287-309.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.