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Consumer Habituation

Author

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  • Luc Wathieu

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

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.

Suggested Citation

  • Luc Wathieu, 2004. "Consumer Habituation," Management Science, INFORMS, vol. 50(5), pages 587-596, May.
  • Handle: RePEc:inm:ormnsc:v:50:y:2004:i:5:p:587-596
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    File URL: http://dx.doi.org/10.1287/mnsc.1030.0185
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    References listed on IDEAS

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    Cited by:

    1. Beccacece, Francesca & Borgonovo, Emanuele & Buzzard, Greg & Cillo, Alessandra & Zionts, Stanley, 2015. "Elicitation of multiattribute value functions through high dimensional model representations: Monotonicity and interactions," European Journal of Operational Research, Elsevier, vol. 246(2), pages 517-527.
    2. Sebastian Galiani & Paul J. Gertler & Raimundo Undurraga, 2015. "The Half-Life of Happiness: Hedonic Adaptation in the Subjective Well-Being of Poor Slum Dwellers to a Large Improvement in Housing," NBER Working Papers 21098, National Bureau of Economic Research, Inc.
    3. 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.
    4. 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.
    5. Patriarca, Fabrizio & Vona, Francesco, 2013. "Structural change and income distribution: An inverted-U relationship," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1641-1658.
    6. Rafael Di Tella & Robert MacCulloch, 2008. "Happiness Adaptation to Income beyond "Basic Needs"," NBER Working Papers 14539, National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.
    9. K. Hilken & K.J.M. De Jaegher & M. Jegers, 2013. "Strategic Framing in Contracts," Working Papers 13-04, Utrecht School of Economics.
    10. Trinh, Giang & Lam, Desmond, 2016. "Understanding the attendance at cultural venues and events with stochastic preference models," Journal of Business Research, Elsevier, vol. 69(9), pages 3538-3544.
    11. 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.
    12. 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.

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