Asymmetric changes in willingness-to-pay: Effects of new external reference price and demand information
Abstract
Dynamic pricing, one of the most major topics in revenue management, is a pricing strategy that adjusts the room rate real time based on the demand and willingness-to-pay (WTP). In a typical online hotel-booking environment, consumers receive new prices (i.e. external reference price ERP) and room-night availability constantly. As Adaptation Level Theory (Helson, 1947) and Transaction Utility Theory (Thaler, 1983) suggest, therefore, consumers would update their WTP in response to new price and availability information. The present study aims to extend the literature on WTP by examining the asymmetric effect of new ERP on WTP change and the effect of availability information on WTP and the asymmetric effect of new ERP. Based on a scenario-based method to elicit consumers' WTP, WTP was found to be positively correlated to the new ERP and there is an asymmetric change in subjects' WTP, where the size of the WTP decrease was larger than the size of the WTP increase. The present of almost-sold-out information was found to reduce the asymmetric effect of new ERP but has no direct effect on WTP. This is a surprise considering that demand information was found to affect willingness to book in earlier studies. The implications of findings and suggestions for hotels regarding their pricing strategy were discussed.
Degree
M.S.
Advisors
Tang, Purdue University.
Subject Area
Marketing|Recreation
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