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Research Note—Estimating Heterogeneous Price Thresholds

  • Nobuhiko Terui

    ()

    (Graduate School of Economics and Management, Tohoku University, Sendai 980-8576, Japan)

  • Wirawan Dony Dahana

    ()

    (Graduate School of Economics, Osaka University, Osaka 560-0043, Japan)

A brand choice model with heterogeneous price-threshold parameters is used to investigate a three-regime piecewise-linear stochastic utility function. The model is used to explore the relationships between aspects of consumer price sensitivity and price thresholds using hierarchical Bayes modeling with the Markov chain Monte Carlo (MCMC) method. This study contributes to the modeling literature on discontinuous likelihoods in choice models. The empirical application using our scanner panel data set shows that the reference effect and loss aversion are more marked after price thresholds are taken into heterogeneous price response models. Furthermore, loss aversion is attenuated by using price thresholds than by an aggregate (homogeneity) model without price thresholds.

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File URL: http://dx.doi.org/10.1287/mksc.1050.0181
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Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 25 (2006)
Issue (Month): 4 (07-08)
Pages: 384-391

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Handle: RePEc:inm:ormksc:v:25:y:2006:i:4:p:384-391
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