Commentary on: “an appraisal of behavioral price research (Part I)”

Abstract

In their article, Cheng and Monroe (2013) undertake a comprehensive review of the major historical, theoretical and empirical developments in the field of behavioral price research. They reveal that theoretical principles underlying work in this area are derived from centuries-old observations in the fields of mathematics (Bernoulli 1954) and psychophysics (Weber 1834; Fechner 1860). Based on these early studies, as well as more recent work by Scitovszky (1944); Adam (1958); Emery (1962) and others, Cheng and Monroe (2013) demonstrate that behavioral price research is grounded in the premise that price is a physical stimulus. As such, it is subject to perceptual bias, distortion, and processing interpretation just as any other physical stimulus. An important implication is that demand for products changes relative to perceived (rather than actual) differences in prices. Further, buyers’ judgments of price reflect a logarithmic relationship between price and value. Using these principles and observations as background, Monroe (1968, 1973) identified the four fundamental concepts of behavioral price research. These are: (1) reference price, (2) differential price threshold, (3) absolute price threshold, and (4) acceptable price range.