The Formation of Expected Future Price: A Reference Price for Forward- Looking Consumers

Abstract

Among numerous possible reference prices, expected future price is important. A consumer's expectation of the future price of a brand plays a crucial role in the decision to buy now or later. Failure to characterize reference price as a forward-looking concept, a common practice in the reference pricing literature, violates premises of neoclassical economic theory and leads to questionable modeling applications. Explicit measures of future price expectations were obtained and used to test various models of expectations formation, providing insight into the effect of expected future price on consumers' responses to price promotions and brand choice decisions.