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The Effects of Selling Complements and Substitutes on Consumer Willingness to Pay: Evidence from Laboratory Experiments

Author

Listed:
  • Matthew C. Rousu
  • Robert H. Beach
  • Jay R. Corrigan

Abstract

Basic economic theory predicts that a consumer’s willingness to pay for a good is affected by the availability of complements and substitutes. In an auction setting, this theory implies that the presence of complements would increase bid prices for a good, while the presence of substitutes would decrease bid prices for a good. We designed an experiment that allows the calculation of inverse elasticities, the inverse-demand equivalent of conventional price elasticities. Our results show that the availability of complementary and substitute products affects bids in the expected directions. This finding has important implications for researchers who design experimental auctions.

Suggested Citation

  • Matthew C. Rousu & Robert H. Beach & Jay R. Corrigan, 2008. "The Effects of Selling Complements and Substitutes on Consumer Willingness to Pay: Evidence from Laboratory Experiments," Working Papers 0801, Kenyon College, Department of Economics.
  • Handle: RePEc:ken:wpaper:0801
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    File URL: http://economics.kenyon.edu/corrigan/publications/Demand%20Curve%20Shifts.pdf
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    References listed on IDEAS

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    5. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    6. Peter Cramton, 2002. "Spectrum Auctions," Papers of Peter Cramton 01hte, University of Maryland, Department of Economics - Peter Cramton, revised 16 Jul 2001.
    7. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
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    Cited by:

    1. Levan Elbakidze & Rodolfo M. Nayga Jr. & Hao Li & Chris McIntosh, 2014. "Value elicitation for multiple quantities of a quasi-public good using open ended choice experiments and uniform price auctions," Agricultural Economics, International Association of Agricultural Economists, vol. 45(2), pages 253-265, March.
    2. repec:eee:jfpoli:v:69:y:2017:i:c:p:82-96 is not listed on IDEAS

    More about this item

    Keywords

    auctions; complements; consumer demand; demand flexibilities; inverse elasticities; laboratory experiments; substitutes.;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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