Omitted Budget Constraint Bias and Implications for Competitive Pricing

Pachali M., Kurz P., Otter T., 2023 – in Journal of Marketing Research, 2023

What happens when budget constraints are omitted in pricing experiments – and how does that affect pricing recommendations?

If budget limits are ignored in conjoint studies, models tend to overestimate the market share of higher-priced products. This leads to unrealistic pricing strategies. The study shows that explicitly modeling budget constraints results in more accurate demand forecasts and competitive price points.