A De-Biased Direct Question Approach to Measuring Consumers' Willingness to Pay
64 Pages Posted: 23 Apr 2020 Last revised: 24 Apr 2020
Date Written: April 24, 2020
Abstract
Knowledge of consumers' willingness to pay (WTP) is a prerequisite to profitable price-setting. To gauge consumers' WTP, practitioners often rely on a direct single question approach in which consumers are asked to explicitly state their WTP for a product. Despite its popularity among practitioners, this approach has been found to suffer from hypothetical bias. In this paper, we propose a rigorous method that improves the accuracy of the direct single question approach. Specifically, we systematically assess the hypothetical biases associated with the direct single question approach and explore ways to de-bias it. Our results show that by using the de-biasing procedures we propose, we can generate a de-biased direct single question approach that is accurate enough to be useful for managerial decision-making. We validate this approach with two studies in this paper.
Keywords: Market Research, Pricing, Demand Estimation, Direct Estimation, Single Question Approach, Choice Experiments, Willingness to Pay, Hypothetical Bias
JEL Classification: D40, M21, M30
Suggested Citation: Suggested Citation