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Similarities and differences between stockpiling and reference effects

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  • Robert Slonim

    (Discipline of Economics, Faculty of Economics and Business, University of Sydney, Sydney, Australia)

  • Ellen Garbarino

    (Discipline of Marketing, Faculty of Economics and Business, University of Sydney, Sydney, Australia)

Abstract

The correlation of past prices and demand is commonly attributed to reference effects. Although reference dependence is robust, support for loss aversion is mixed; some find demand more sensitive to price increases, consistent with loss aversion, others find no difference or greater sensitivity to price decreases. Stockpiling offers an explanation for these mixed findings. Combining theory, analytical models and simulations, stockpiling and reference dependence predict similar effects and the more stockable the product, the greater sensitivity of demand to price decreases, the opposite of loss aversion. We show that a model combining stockpiling and reference effects best aligns with previous findings and under what conditions each effect should dominate. Copyright © 2008 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 6 ()
Pages: 351-371

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Handle: RePEc:wly:mgtdec:v:30:y:2009:i:6:p:351-371

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Cited by:
  1. Lisa Gimpl-Heersink & Christian Rudloff & Moritz Fleischmann & Alfred Taudes, 2008. "Integrating Pricing and Inventory Control: Is it Worth the Effort?," BuR - Business Research, German Academic Association for Business Research, German Academic Association for Business Research, vol. 1(1), pages 106-123, May.
  2. Tülin Erdem & Michael Katz & Baohong Sun, 2010. "A simple test for distinguishing between internal reference price theories," Quantitative Marketing and Economics, Springer, Springer, vol. 8(3), pages 303-332, September.

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