nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2017‒03‒26
three papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Individual preference for the alternative fuel vehicles and their attributes in Poland. By Milan Scasny; Milan Scasny; Iva Zverinova; Mikolaj Czajkowski
  2. Adjacent Price Anchoring and Consumer’s Willingness to Pay: A Bayesian Approach By Atanu Adhikari
  3. Fairness in Participative Pricing: A New Way of Pricing in Hospitality Sector By Atanu Adhikari

  1. By: Milan Scasny; Milan Scasny; Iva Zverinova; Mikolaj Czajkowski
    Abstract: Low-carbon vehicles due to their relatively lower fuel intensity directly affect CO2 emissions and are thus technologic solutions that may mitigate climate change. Electric vehicles and hybrid electric vehicles can be a component of a smart grid and thus could help to accommodate more electricity from renewable energy in the grid. Overall effect on GHG and local air pollutants of course will depend on fuel mix used to generate electricity. Alternative fuel vehicles (AFVs) are usually more expensive than conventional cars. Besides the purchase costs, other characteristics of vehicles are also important for a car driver. The purpose of this study is to contribute to the literature that have examined individual preferences for various characteristics of passenger vehicles, including passenger vehicles with very small market share or which recently do not appear at the market. With the onset of alternative fuel vehicles on the market, large amount of studies focusing on consumer preferences of AFVs have been already conducted worldwide. Consumers’ demand for vehicle described with several specific characteristics can be modelled using existing data on market penetration or consumption decisions, i.e. through analysis of revealed preferences. However, if the supply of certain durable goods is constraint or almost zero as is the case for new device or not yet existing technology, potential demand can be examined using stated preferences technique. In our case, the main aim of this survey is to review individual traveller’s preferences for passenger vehicle, specifically for a vehicle that is recently characterized by negligible market penetration. In other words, the stated preferences, as elicited via a stated preference surveys, for the demand for cars with alternative drive technologies are examined. There are several stated preference studies on consumers’ preferences for the uptake of alternative fuel vehicles. However, our study is the first of this kind that has ever been conducted in a post-transition CEE country, in Poland. We surveyed 2,600 individuals in order to elicit preferences for the passenger AFV technologies. We specifically examine individual preferences for three types of alternative technologies (hybrid vehicle - HV, plug-in electric vehicle - PHEV, and electric vehicle - EV) and a conventional car that vary in technology characteristics (driving range, refuelling/recharging time), policy incentives (free parking, public transportation, and availability of fast mode infrastructure) and costs (purchase price, operational and fuel cost), following partly a design by Hoen and Koetse (2012). Our sampling allows us to analyse the preferences for segment of new car buyers as well as buyers of second-hand cars that dominates passenger vehicle market in Poland. Individual preferences are elicited by using the labelled discrete choice experiments (Hensher, Rose, Greene, 2005; Carson and Louviere, 2011). The choice cards include always four technology-specific alternatives and we ask to choose the best option eight times. The choice sets are based on efficient design with the priors estimated from the pilot study (N=400). Our econometric model is based on a random utility framework. We assume that respondents chose a vehicle alternative if their willingness to pay for such vehicle is greater than the cost of this alternative. The corresponding indirect utility function is additive in vehicle’s characteristics and costs. We assume that the random component is an independent and identically distributed type I extreme value error term with a scale parameter equal to 1. It implies that the statistical model of the responses is a conditional logit that is linear in the parameters, and the probability is the contribution to the likelihood of the conditional logit model. In order to analyse preference heterogeneity, we allow controlling for the effect of socio-demographics or other respondent-specific indicators, and also estimate random parameter (mixed) logit.We reveal that the Polish consumers have the lowest preference for hybrid cars, followed then by PHEVs and EVs. In general, we found similar preferences among Polish respondents as found elsewhere in the literature. Driving range and recharging time are quite important attributes of a car which Polish consumers intend to buy. On average, Polish drivers are willing to pay about 3,000 zł for each 100 kms of driving range, and the drivers who intend to buy a second-hand car value the driving range less (about 2,000 zł) than respondents who intend to buy a new car (5,000 zł). As expected, the coefficient on recharging time is negative and significant; on average, Polish drivers are willing to pay slightly less than 1,000 zł for each hour saved for recharging. Again, the new car buyers are willing to pay more than the second-hand car buyers. Their willingness to pay (WTP) for availability of fast mode recharging infrastructure is almost one order of magnitude larger than their WTP for reducing the recharging time by one hour. Providing other benefits, such as free parking and public transport, increases the probability to choose the AFVs. References: Carson, R. T., Louviere, J. J. (2011). A Common Nomenclature for Stated Preference Elicitation Approaches. Environmental and Resource Economics, 49(4), 539–559. doi:10.1007/s10640-010-9450-x Hensher, D., Rose, J.M., Greene, W.H. (2005). Applied Choice Analysis. Cambridge University Press. Hoen, A., Koetse, M.J. (2014). A choice experiment on alternative fuel vehicle preferences of private car owners in the Netherlands. Transportation Research Part A: Policy and Practice, 61, pp. 199-215.
    Keywords: Poland, Energy and environmental policy, Microsimulation models
    Date: 2015–07–01
  2. By: Atanu Adhikari (Indian Institute of Management Kozhikode)
    Abstract: Considerable research on consumers' use of psychological reference points exists in pricing literature. Researchers examining brand choice have reasoned that reference point is based on past prices of the brand. We argue that consumers’ reference prices is motivated by the adjacent price of the product at point of display rather than any other reference prices in the context. This research studies the effect of adjacent price on consumers’ willingness to pay and purchase intention. This research considers consumer level heterogeneity since price sensitivity and consumers’ willingness to pay vary among individual. Hierarchical Bayes methodology is used to incorporate heterogeneity. This study shows significant difference in consumers’ willingness to pay when a medium priced brand is placed adjacent to a high priced brand as against adjacent to a moderately priced brand.
    Keywords: Brand-choice decision, Willingness to pay, internal reference price, Consumer heterogeneity, Hierarchical Bayes
    Date: 2016–12
  3. By: Atanu Adhikari (Indian Institute of Management Kozhikode)
    Abstract: While conventional pricing strategy involves sellers to decide price of a hospitality product, hospitality service providing companies carry the risk of capacity underutilization in many occasions when fixed costs are already incurred. Pay What You Think Fair (PWYTF) pricing mechanism motivates tourists to pay a fair price for unutilized capacity, thereby, increasing sales and profit for marketers. This study shows that PWYTF pricing mechanism with a concrete reference price of customer can generate significantly higher revenue and profit for a long period of time. We have conducted three experiments to show that PWYTF pricing strategy is a profitable and sustainable pricing solution for hospitality service providing companies to increase revenue during off-season as well as underutilization of hired capacity. This study opens a new avenue in pricing methods used in hospitality industry and contribute in significant way both in academic and practice.
    Keywords: Pay What You Think Fair, Willingness to buy, Willingness to pay, Participative pricing, Reference price,
    Date: 2016–12

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