Market Price Variation, Perceived Price Variation, and Consumers' Price Search Decisions for Durable Goods

Abstract

Previous studies have consistently found that most consumers undertake relatively little prepurchase search for durable goods and do even less price-comparison shopping despite the reported importance of price to consumers' purchase decisions. This article proposes and tests two possible explanations for why consumers' willingness to engage in price search does not increase concomitantly with the price variation of durable goods. The first potential explanation, that consumers simply underestimate the market price variation, was not supported. The second possible explanation, which builds upon Weber's law of psychophysics and Thaler's transaction utility theory, was supported. The data indicate that the psychological utility that a consumer derives from saving a fixed amount of money is inversely related to the price of the item. In this case, even if consumers believe that the price variation of more expensive items tends to be greater, their motivation to spend time in price-comparison shopping for these items may not increase as much as expected.