Abstract
Choosing a valid procedure to measure willingness to pay (WTP) is crucial for designating optimum price policies or for evaluating the demand for new products. This study compares two methods for obtaining WTP in a food context: a random nth price auction and an open-ended contingent valuation (CV) question. Participants were regular salad tomato buyers of Alicante and they were randomly assigned to one of the two treatments. The products about which they would show their WTP were traditional tomato varieties. Both treatments were divided into three stages: in the first stage the only available information was a reference price for the tomatoes. In stages 2 and 3 we revealed the local origin and the organic grown of the tomatoes respectively. Our results show that in the auction the percentage of participants willing to pay the same or more than the reference price was between 20 and 30%. In the CV method this percentage was between 40 and 65%. The mean WTP in the auction, considering the whole of the individuals, was situated between 1.90 and 2.13 €/kg. These same results obtained through the CV were situated between 2.54 and 3.21 €/kg. The results confirmed the findings of previous papers in which the hypothetical bias of CV was clarified because it yields higher values for WTP than the auction, especially when referring to the number of individuals willing to pay more. Additionally, hedonic price models were estimated for the prices obtained by both methods with the result that in all the models, WTP was directly related to the price paid for the latest purchase of tomatoes.
Highlights
Many commercial decisions such as setting prices or launching new products require an adequate knowledge of how consumers value those products
The results confirmed the findings of previous papers in which the hypothetical bias of contingent valuation (CV) was clarified because it yields higher values for willingness to pay (WTP) than the auction, especially when referring to the number of individuals willing to pay more
Hedonic price models were estimated for the prices obtained by both methods with the result that in all the models, WTP was directly related to the price paid for the latest purchase of tomatoes
Summary
Many commercial decisions such as setting prices or launching new products require an adequate knowledge of how consumers value those products. One way to measure the value that consumers place on a product is through their willingness to pay (WTP). WTP indicates the maximum quantity of money that consumers would pay for a certain quantity of the product (Kalish & Nelson, 1991). Choosing a valid procedure to measure WTP is crucial for designating optimum price policies or for evaluating the demand for new products. The choice of the most appropriate method for measuring WTP is a complex task, since true consumer WTP is an unobservable construct. Each method for measuring WTP only represents an attempt to come as close as possible to true consumer valuation (Voelckner, 2006)
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