In
behavioral economics
Behavioral economics is the study of the psychological (e.g. cognitive, behavioral, affective, social) factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by traditional economi ...
, willingness to pay (WTP) is the maximum
price at or below which a
consumer
A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
will definitely buy one unit of a
product. This corresponds to the standard economic view of a consumer
reservation price. Some researchers, however, conceptualize WTP as a range.
According to the constructed preference view, consumer willingness to pay is a context-sensitive construct; that is, a consumer's WTP for a product depends on the concrete decision context. For example, consumers tend to be willing to pay more for a soft drink in a luxury hotel resort in comparison to a beach bar or a local retail store.
Experimental context
In laboratory experiments auctions are conducted, a premise of the experiment is often that "bid = WTP".
See also
*
Cost-benefit analysis
*
Welfare economics
Welfare economics is a field of economics that applies microeconomic techniques to evaluate the overall well-being (welfare) of a society.
The principles of welfare economics are often used to inform public economics, which focuses on the ...
References
Further reading
*Anderson, James C., Dipak Jain, and Pradeep K. Chintagunta (1993), "Understanding Customer Value in Business Markets: Methods of Customer Value Assessment," Journal of Business-to-Business Marketing, 1 (1), 3–30.
*Breidert Christoph, Hahsler, Michael, and Reutterer (2006)
"A Review of Methods for Measuring Willingness-to-Pay" Innovative Marketing, 2(4), 8–32.
*Miller, Klaus M., Hofstetter, Reto, Krohmer, Harley, Zhang, John Z. (2011)
"How Should Consumers' Willingness to Pay be Measured? An Empirical Comparison of State-of-the-Art Approaches" Journal of Marketing Research.
*Wertenbroch, Klaus and Bernd Skiera (2002)
"Measuring Consumers' Willingness to Pay at the Point of Purchase,"Journal of Marketing Research, 39 (May), 228–41.
Pricing
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