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The Information Content of Prices: A Preliminary Model for Estimating Buyer Response

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  • Kent B. Monroe

    (University of Massachusetts)

Abstract

An understanding of buyer response to price depends upon determining how buyers perceive price. One hypothesis is buyers have an acceptable range of prices and, therefore, the demand curve is backward bending. This article presents an a priori argument for a new research methodology for estimating buyers' responses to price. Two concepts are introduced to aid the development of the model. The potential applicability of the Weber-Fechner Law of psychophysics for exploring the price-quality relationship is analyzed and provides the basis of the argument that the demand function can be represented logarithmically. Given the desire to express demand as a logarithmic function of price, the lognormal distribution is used to explore the ramifications of the relationship. Finally, the method of profit analysis is developed for obtaining demand estimates.

Suggested Citation

  • Kent B. Monroe, 1971. "The Information Content of Prices: A Preliminary Model for Estimating Buyer Response," Management Science, INFORMS, vol. 17(8), pages 519-532, April.
    • Handle: RePEc:inm:ormnsc:v:17:y:1971:i:8:p:b519-b532
    DOI: 10.1287/mnsc.17.8.B519
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    Cited by:

    1. Stuart Read & Stefan Michel & Jan H. Schumann & Kumar Rakesh Ranjan, 2019. "Pricing co-created value: an integrative framework and research agenda," AMS Review, Springer;Academy of Marketing Science, vol. 9(3), pages 155-183, December.
    2. Rashmi Adaval, 2013. "The utility of an information processing approach for behavioral price research," AMS Review, Springer;Academy of Marketing Science, vol. 3(3), pages 130-134, September.
    3. Hsin‐Hui Lin & Pin‐Han Chen & Chih‐Lun Wu, 2023. "Exploring the price anchoring effect in mobile commerce: An experimental study," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1601-1623, April.
    4. Katja Gelbrich & Holger Roschk, 2011. "Do complainants appreciate overcompensation? A meta-analysis on the effect of simple compensation vs. overcompensation on post-complaint satisfaction," Marketing Letters, Springer, vol. 22(1), pages 31-47, March.
    5. Chatterjee, Sidharta, 2017. "A Primer on Social Knowledge," MPRA Paper 81105, University Library of Munich, Germany, revised 02 Sep 2017.
    6. Lillian L. Cheng & Kent B. Monroe, 2013. "An appraisal of behavioral price research (part 1): price as a physical stimulus," AMS Review, Springer;Academy of Marketing Science, vol. 3(3), pages 103-129, September.

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