Abstract

This project focuses on consumers’ overestimation of others’ willingness to pay, a topic of theoretical importance as well as managerial importance. Previous research has found that consumers often overestimate others’ willingness to pay, and that this effect can be found in a variety of circumstances. The underlying reasons behind this effect are, however, not well understood. We conducted seven studies to test the leading proposed explanations – namely, perceptions of others’ consumer spending self-control capabilities and perceptions of others’ affluence – and also considered moderating factors such as product type – hedonic/ utilitarian, and ethical/conventional products. Overall, our research contributes to the pricing literature by adding to the limited number of studies that have so far addressed this issue. Our findings replicate some earlier ones, and also provide insight into the mechanism through which overestimation occurs. Pricing practitioners should also benefit from our findings as they will be able to calibrate themselves better so as to minimize overestimation, and generate sales while charging the optimal price in the conduction of an appropriate marketing strategy.