EXPRESS: Perceived vs. Negotiated Discounts: The Role of Advertised Reference Prices in Price Negotiations

Retailers routinely present a posted price together with a higher advertised reference price, in an effort to evoke a perception of the discount the consumer is receiving. If prices can be negotiated though, what impact does this initial perceived discount (IPD) have on the ultimate discount, demand, and revenue? With data from consumers of a large durable goods retailer, in a natural decision-making environment, this study provides evidence that a greater IPD is associated with smaller negotiated discounts. Then, a lab experiment involving negotiation and purchase decisions for multiple products, with randomly assigned values of the IPD, establishes that a $1 increase in IPD lowers the negotiated discount by 4.7 cents. Furthermore, 75% of this decrease can be attributed to reduction in the participants' likelihood to initiate a negotiation. Under bargaining, almost half of the increase in revenue from a higher IPD stems from an increase in the negotiated price, which is unlike fixed pricing, in which setting an increase in IPD affects revenue only through changes in demand. Sellers also have a greater incentive to set exaggerated advertised reference prices in bargaining contexts, compared with fixed pricing. These findings in turn have implications for researchers, retailers, and consumers.

Reference Prices and Turnover: Evidence from Small-Capitalization Stocks

A large amount of literature in the field of social psychology and product pricing discusses the role of reference prices in affecting buyer’s price perception and purchase intention. Reference price denotes a standard against which the consumer compares the offer price of a product. In this paper, we investigate whether reference prices play any role in affecting the trading decision of stock market investors. We use firm-level, fixed-effect panel data methodology to empirically investigate whether investors respond to a violation of their internalized reference price range by executing a trading decision. Our results, based on a sample of Indian firms with small capitalization, show that investors respond to a violation of their internalized reference price range by executing a trading decision. However, consistent with the prior findings that investors suffer from myopic loss aversion, they continue to hold the positions when the reference price range is violated on the downside but sell stocks that have violated the high point of the reference price range. Our findings are robust for the reference price ranges that are constructed using the prior day’s trading prices, prior week’s trading prices, and prior year’s trading prices. The portfolio managers can develop a better understanding of expected trading intensity by incorporating reference price range in their models. The policymakers can use our results to find ways to improve the liquidity and efficiency of financial markets.

Equilibrium decisions on pricing and innovation that impact reference price dynamics

<p style='text-indent:20px;'>Previous studies have confirmed that reference prices play an essential role in consumer purchasing decisions, and some researchers have suggested that reference prices are positively influenced by innovation. Therefore, we construct an interactive effect of innovation and reference price to study their combined impact on supply chain decisions. We model a supply chain, where a manufacturer determines the innovation level and the wholesale price while the retailer controls the retail price, as a dynamic Stackelberg game. We show that the interactive effect causes the steady-state wholesale and retail prices to increase, thus motivating the manufacturer to increase innovation investment. We see that the retail price and the level of innovation increase in reference price effect whereas they decrease in consumer memory. The centralized firm has a higher steady-state innovation level and innovation/price ratio and lower steady-state retail price compared to the decentralized supply chain. Consumers also benefit from the interactive effect as well as from centralization. Finally, we use numerical analysis to demonstrate our results and offer some managerial implications.</p>

Monitoring Cardiovascular Medicine Prices as a Tool for Analyzing the Effectiveness of Government Intervetions to Ensure Access to Medicines at the Regional Level

Aim. The aim of our study was to continue a comparative analysis of availability and access to cardiovascular medicines in 2017 and 2018 in the city of Kazan according to the original WHO/HAI methodology to assess the effectiveness of government interventions to ensure access to medicines.Material and methods. We performed a comparative analysis of prices of cardiovascular medicines in 2017 and 2018 in Kazan using the World Health Organization and Health Action International (WHO/HAI) methodology, to assess medicines' availability and affordability to ensure their rational use. We studied availability and prices of 71 cardiovascular medicines in public and private pharmacies in the city of Kazan and analyzed procurement prices of these medicines in hospitals. Also we studied the affordability of medicines, as well as performed pharmacoeconomic cost-minimization analysis for arterial hypertension pharmacotherapy in 2018. For each name, we studied the prices for the original brand and its lowest-priced generic. We compared medicine prices with international reference, delivered by the Management Sciences for Health and by expressing them as median price ratio (MPR).Results. In the public sector, prices of generic medicines were at the level of reference prices with the indicators of MPR 1.14 [0.41-1.84] and 1.17 [0.49-2.21], in 2017 and 2018 respectively. In the private sector, prices of generics reduced 2 times in 2018 compared to 2017, with the decrease in MPR from 2.22 [1.12-3.91] to 1.25 [0.44-2.32], (p<0.05). In the public sector, the affordability indicators of generics were the same in the studied years (Me=0.24 in 2017 and Me=0.26 in 2018). However, in the private sector there was a 2.5 times reduction in the affordability of generics (reduction Me from 0.66 to 0.24, p<0.05) in 2018 compared to 2017. From 2017 to 2018 the affordability of original brands changed from 1.9 to 1.3 in the public sector and from 2.3 to 1.5 in the private sector, but this change was not statistically significant (p>0.05). In 2018, depending on the choice of the medicine the annual course of therapy of hypertension varied from 149 to 28835 rubles.Conclusions. In 2018, the prices of generic cardiovascular medicines, but not of originator brands, reached the level of reference prices in both the public and private sectors of Kazan. According to the WHO/HAI methodology, generic cardiovascular medicines became affordable. In the private sector, there was a reduction in the prices of generic medicines, but not of originator brands, with an improvement of affordability of generics in 2018 compared to 2017.

Commodities and Derivatives, 2007–20

By the beginning of the twenty-first century the role of commodity exchanges was to set reference prices for both commodities and financial products. Actual trading took place directly between producers and consumers or buyers and sellers. The exchanges provided heavily traded standardized contracts that were highly liquid, but charged for the service they provided and imposed strict rules and regulations. In contrast, direct trading between buyers and sellers was conducted free of charge and customized to suit the interests of particular buyers and sellers. It was those contracts traded away from the exchanges that many blamed for the crisis because of their contribution to increased risk taking. As a result there were moves to ban such contracts and to bring all derivatives trading onto regulated exchanges. However, derivatives proved to be essential features of volatile markets and exchanges were unable to provide the ease and flexibility that users found in the OTC market. As a result the derivatives market recovered from the crisis as the products it provided remained indispensable.

Prices of medicines for the management of pain, diabetes and cardiovascular diseases in private pharmacies and the national health insurance in Tanzania

Background High price is a major challenge limiting access to essential medicines especially among the poorest families in developing countries. The study aims to compare the prices of medicines used in the management of pain, diabetes, and cardiovascular diseases in private pharmacies and the National Health Insurance Fund (NHIF) in Tanzania. Pharmacy prices were also compared with the prices of medicines surveyed nationally by WHO/HAI in 2012. Method This cross-sectional study was conducted in Dar es Salaam, Morogoro, Dodoma, and Kilimanjaro regions from February to April 2015. Data were collected from 33 private pharmacies, NHIF and, the HAI database. The study used the WHO/HAI methodology. The analysis was done using non-parametric Kruskal-Wallis and post-hoc pair-wise comparison Dunn test, while a possible change in prices between our survey and 2012 WHO/HAI national survey data was tested using a Sign test in Stata version 16.1. Results Twenty-eight essential medicines, of which 9 are used for management of pain, 7 for diabetes, and 12 for cardiovascular diseases were analyzed. There was a significant difference in the mean pharmacy prices of some medicines between the regions and between the pharmacies and NHIF reference prices. NHIF reference prices were higher than the pharmacy prices for 16 of the 28 medicines. There was a significant increase in the prices of 5 out of the 8 medicines that were also nationally surveyed by the WHO/HAI in 2012. Conclusion The study found that medicine prices in private pharmacies vary a lot between the study regions, which raises equity concerns. Also, there was a significant difference between the pharmacy and the NHIF reimbursement prices, which may expose patients to fraudulent co-payments or hinder timely access to prescribed medicines. Therefore, effective price control policies and regulations for medicines are warranted in Tanzania.