Measuring Consumers' Willingness to Pay at the Point of Purchase

Abstract

Economists, psychologists, and marketing researchers rely on measures of consumers' willingness to pay (WTP) in estimating demand for private and public goods and in designing optimal price schedules. Existing market research techniques for measuring WTP differ in whether they provide an incentive to consumers to reveal their true WTP and in whether they simulate actual point-of-purchase contexts. The authors present an empirical comparison of several procedures for eliciting WTP that are applicable directly at the point of purchase. In particular, the authors test the applicability of Becker, DeGroot, and Marschak's (1964) well-known incentive-compatible procedure for assessing the utility of lotteries to measuring consumers' WTP. In three studies, the authors explore the reliability, validity, and feasibility of the procedure and show that it yields lower WTP estimates than do non-incentive-compatible methods such as open-ended and double-bounded contingent valuation. They show experimentally that differences in WTP estimates arise from the incentive constraint rather than the cognitive effort required in responding. They also control for strategic response behavior.