An analysis of asymmetric demand response to price changes: The case of local telephone calls

Bidwell, Miles O.; Wang, Bruce X.; Zona, J. Douglas

doi:10.1007/bf01070810

Cited by 21 publications

(10 citation statements)

References 6 publications

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“…While all economic models are sensitive to assumptions regarding such "choice bracketing," the issue is especially acute in models such as ours. What other decisions 37 We also suspect that our model may help intepret, improve, and bring into economic analysis the vast marketing literature on two topics: Brand loyalty (see, e.g., Aaker 1991Aaker ,1995 and reference-price effects (see., e.g., Bidwell, Wang, and Zona (1995) and Putler (1992)). While-especially in understanding brand loyalty-other factors seem important, these two phenomena are plausibly related to the role of reference points in both purchases of goods and the prices paid.…”

Section: Discussionmentioning

confidence: 99%

A Model of Reference-Dependent Preferences

Kőszegi

Rabin

2006

The Quarterly Journal of Economics

1,109

1,640

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We develop a model that fleshes out, extends, and modifies existing models of referencedependent preferences and loss aversion while accomodating most of the evidence motivating these models. Our approach makes reference-dependent theory more broadly applicable by avoiding some of the ways that prevailing models-if applied literally and without ancillary assumptions-make variously weak and incorrect predictions. Our model combines the reference-dependent gain-loss utility with standard economic "consumption utility" and clarifies the relationship between the two. Most importantly, we posit that a person's reference point is her recent expectations about outcomes (rather than the status quo), and assume that behavior accords to a personal equilibrium: The person maximizes utility given her rational expectations about outcomes, where these expectations depend on her own anticipated behavior. We apply our theory to consumer behavior, and emphasize that a consumer's willingness to pay for a good is endogenously determined by the market distribution of prices and how she expects to respond to these prices. Because a buyer's willingness to buy depends on whether she anticipates buying the good, for a range of market prices there are multiple personal equilibria. This multiplicity disappears when the consumer is sufficiently uncertain about the price she will face. Because paying more than she anticipated induces a sense of loss in the buyer, the lower the prices at which she expects to buy the lower will be her willingness to pay. In some situations, a known stochastic decrease in prices can even lower the quantity demanded.

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Section: Discussionmentioning

confidence: 99%

A Model of Reference-Dependent Preferences

Kőszegi

Rabin

2006

The Quarterly Journal of Economics

1,109

1,640

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“…Dargay 1992 for the UK, Gately 1992 for the USA, Dargay andGately 1997 andAdeyemi et al 2010 for OECD, Sentenac-Chemin 2010 for India). There were also evidence of such price asymmetry in demand for telephone calls (Bidwell et al 1995) and cigarettes (Young 1983). …”

Section: Reversibility Asymmetry Hysteresismentioning

confidence: 99%

“…Although the classical demand theory does not differentiate between the impacts of price increases and decreases, applied researchers have speculated that consumers react more to price increases than to reductions simply due to inherent behavioural reasons. There is empirical literature on such behavioural asymmetric response of consumers to increasing and decreasing product prices, see for example Bidwell et al (1995) for telephone calls or Young (1983) for cigarette smoking. At the same time, there is evidence of a quicker and larger cost pass-through to product prices by businesses during rising product costs than during falling costs, a phenomenon often known as 'rocket and feather' responses (product price shoots up like a rocket during cost increases, but falls like a feather during cost reductions, see Bacon 1991).…”

Section: Reversibility Asymmetry Hysteresismentioning

confidence: 99%

The asymmetric effects of income and fuel price on air transport demand

Wadud

2014

Transportation Research Part A: Policy and Practice

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Article:Wadud, Z (2014) The asymmetric effects of income and fuel price on air transport demand. ReuseUnless indicated otherwise, fulltext items are protected by copyright with all rights reserved. The copyright exception in section 29 of the Copyright, Designs and Patents Act 1988 allows the making of a single copy solely for the purpose of non-commercial research or private study within the limits of fair dealing. The publisher or other rights-holder may allow further reproduction and re-use of this version -refer to the White Rose Research Online record for this item. Where records identify the publisher as the copyright holder, users can verify any specific terms of use on the publisher's website. TakedownIf you consider content in White Rose Research Online to be in breach of UK law, please notify us by emailing eprints@whiterose.ac.uk including the URL of the record and the reason for the withdrawal request. Note: There will still be some minor changes made to this manuscript prior to final publication. AbstractForecasts of passenger demand are an important parameter for aviation planners. Air transport demand models typically assume a perfectly reversible impact of the demand drivers. However, there are reasons to believe that the impacts of some of the demand drivers such as fuel price or income on air transport demand may not be perfectly reversible. Two types of imperfect reversibility, namely asymmetry and hysteresis, are possible. Asymmetry refers to the differences in the demand impacts of a rising price or income from that of a falling price or income. Hysteresis refers to the dependence of the impacts of changing price or income on previous history, especially on previous maximum price or income. We use US time series data and decompose each of fuel price and income into three component series to develop an econometric model for air transport demand that is capable of capturing the potential imperfectly reversible relationships and test for the presence or absence of reversibility. We find statistical evidence of asymmetry and hysteresis for both, prices and income in air transport demand. Implications for policy and practice are then discussed.

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“…Several researchers incorporated loss aversion in consumer demand models and found empirical evidence of asymmetric demand responses for various types of goods. These include Putler (1992) for eggs, Hardie, Johnson and Fader (1993) for orange juice, and Bidwell et al (1995) for telephone calls. While the asymmetric response of consumers has received adequate attention in the empirical literature (e.g.…”

Section: Here]mentioning

confidence: 99%

Asymmetry in transport fuel demand: Evidence from household level data

Wadud

2017

Transportation Research Part D: Transport and Environment

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Models for gasoline demand for transportation activities generally assume that demand is perfectly reversible with respect to gasoline price (and income). The small literature which relaxes the reversibility assumption in gasoline demand argues technological fixation leads to this asymmetry and utilizes aggregate time-series model to find evidence in favour of asymmetry. In this research it is suggested that there could also be behavioural factors behind this asymmetric response, possibly due to the loss aversion nature of human beings as described in the prospect theory. For the first time, household level data was used to understand asymmetry in gasoline demand in response to changes in gasoline price and income. There was statistical evidence that gasoline price and income both can induce asymmetric changes in gasoline demand among households. Specifically, elasticity with respect to rising prices and falling income is larger than the elasticity with respect to falling prices and rising income respectively, which is consistent with loss aversion in gasoline purchase behaviour. There was also some evidence of heterogeneity in the asymmetric responses between urban and rural households. The results have implications for transport-related energy tax policies or subsidies, while the method can be applied directly for non-energy goods as well.

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An analysis of asymmetric demand response to price changes: The case of local telephone calls

Cited by 21 publications

References 6 publications

A Model of Reference-Dependent Preferences

A Model of Reference-Dependent Preferences

The asymmetric effects of income and fuel price on air transport demand

Asymmetry in transport fuel demand: Evidence from household level data

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