Similarities and differences between stockpiling and reference effects
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.
Volume (Year): 30 (2009)
Issue (Month): 6 ()
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