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Consumer Habituation

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  • Luc Wathieu

    ()
    (Harvard Business School, Morgan Hall, Soldiers Field, Boston, Massachusetts 02163.)

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    Abstract

    This paper examines how consumers' willingness to pay for goods is determined by past patterns of consumption. The central result is a theorem of interior maximum, which states that willingness to pay for a good is maximized at a moderate level of habitual consumption. The theorem is derived from a simple model of adaptive behavior that involves a shifting S-shaped value function. The detailed analysis of the impact of consumption frequency and intensity on willingness to pay reveals an unsuspected implication of diminishing sensitivity, even as it leads to a formalization of consumer habituation patterns (including sensitization, habituation, and response recovery upon withdrawal) that matches and integrates the most robust empirical regularities attendant on nonassociative learning in neurobiology and behavioral psychology. An examination of the implications for demand dynamics and pricing highlights deterministic recurrent and transient patterns of consumption at higher price points.

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    File URL: http://dx.doi.org/10.1287/mnsc.1030.0185
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 50 (2004)
    Issue (Month): 5 (May)
    Pages: 587-596

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    Handle: RePEc:inm:ormnsc:v:50:y:2004:i:5:p:587-596

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    Related research

    Keywords: habituation; sensitization; choice over time; habit formation; psychology and economics; diminishing sensitivity; reference dependence; addiction;

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    Cited by:
    1. Liberali, Guilherme & Gruca, Thomas S. & Nique, Walter M., 2011. "The effects of sensitization and habituation in durable goods markets," European Journal of Operational Research, Elsevier, vol. 212(2), pages 398-410, July.
    2. Bernasconi, Michele & Corazzini, Luca & Seri, Raffaello, 2014. "Reference dependent preferences, hedonic adaptation and tax evasion: Does the tax burden matter?," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 103-118.
    3. Andreas Chai, 2011. "Consumer specialization and the Romantic transformation of the British Grand Tour of Europe," Journal of Bioeconomics, Springer, vol. 13(3), pages 181-203, October.
    4. Fabrizio Patriarca & Francesco Vona, 2009. "Structural Change and the Income Distribution: a Post-Keynesian disequilibrium model," Working Papers - Dipartimento di Economia 5, Dipartimento di Economia, Sapienza University of Rome, revised 2009.
    5. Di Tella, Rafael & Haisken-De New, John & MacCulloch, Robert, 2010. "Happiness adaptation to income and to status in an individual panel," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 834-852, December.
    6. Michele Bernasconi, Luca Corazzini, Raffaello Seri, 2012. "Tax Evasion: Does the Tax Burden Matter?," ISLA Working Papers 43, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.
    7. Jia, Junxiu & Zhang, Jiang, 2013. "Dynamic ordering and pricing strategies in a two-tier multi-generation durable goods supply chain," International Journal of Production Economics, Elsevier, vol. 144(1), pages 135-142.
    8. Katharina Hilken & Kris De Jaegher & Marc Jegers, 2013. "Strategic Framing in Contracts," Working Papers 13-04, Utrecht School of Economics.
    9. Rafael Di Tella & Robert MacCulloch, 2008. "Happiness Adaptation to Income beyond "Basic Needs"," NBER Working Papers 14539, National Bureau of Economic Research, Inc.

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