More or less: a model and empirical evidence on preferences for under and over-payment in trade-in transactions
|Kyeoung Heui, K
|Trade-in transactions typically involve an exchange of an old, used version for a new or newer version of the product. When consumers trade in their used model for a new model, the firm faces the choice of paying the consumer a relatively low price for the used model and charging a commensurately low price for the new model or paying a relatively high price for the used model and charging a commensurately high price for the new model. The extant literature suggests that consumers always prefer to be overpaid in trade-in transactions because they disproportionately value the gain associated with the revenues from the sale of the used version of the product. The authors draw from the prospect theory value function to develop a simple analytical model that identifies a condition under which this preference for overpayment is reversed. Their model predicts that even when faced with economically equivalent price formats, consumers prefer to be overpaid when the ratio of the price of their used product to the price of the new product is low, but when that ratio is high, the preference for overpayment is reversed. They observe support for the predictions that emerge from the model in laboratory experiments.
|Journal of Marketing Research, vol.48(1), pp.157 –171
|0022-2437 (print) 1547-7193 (online)
|American Marketing Association
|© 2011, American Marketing Association. All rights reserved. Authors retain the right to place his/her publication version of the work on a personal website or institutional repository for non commercial purposes. The definitive version was published in (see Citation). The original publication is available at (see Publisher’s Version).
|Behavioral decision theory
|More or less: a model and empirical evidence on preferences for under and over-payment in trade-in transactions
|/AUT/Business & Law
|/AUT/Business & Law/Marketing
|/AUT/Business & Law/Marketing/Marketing PBRF 2012
|/AUT/PBRF Researchers/Business & Law PBRF Researchers
|/AUT/PBRF Researchers/Business & Law PBRF Researchers/B & L Marketing & Advertising