Srabana Dasgupta

Can Trade-Ins Hurt You? Exploring the Effect of a Trade-In on Consumers' Willingness to Pay for a New Product

When consumers decide to upgrade to a new or better product, they often trade in their currently owned or used product for the new one. The authors examine whether such trade-in behavior, in which consumers must negotiate the price for both the new and the used product, affects their willingness-to-pay price for the new good. Drawing on research on mental accounting, the authors reason that when consumers engage in a transaction involving a trade-in (i.e., when they act as both buyer and seller simultaneously), they place more importance on getting a good value for the used product than on getting a good price for the new product. As a result, such consumers exhibit a higher willingness-to-pay price for the new product than consumers who just buy the new product alone. The results from a series of laboratory experiments provide systematic support for this hypothesis. Finally, the authors lend external validity to their results by confirming the hypothesis using real-world transaction data from the automobile market.

To Lease or to Buy? A Structural Model of a Consumer's Vehicle and Contract Choice Decisions

By treating leasing and financing contracts as differentiated products with their own unique acquisition costs, the authors develop a structural model of a consumers choice of automobile and the related decision of whether to lease or buy it. They estimate the model on a data set of new car purchases from the entry-luxury segment of the U.S. automobile market. A key finding is that consumers are myopic and prefer contracts with lower payment streams even when they have higher total costs. The authors also find that consumers are more likely to lease than to finance cars with higher maintenance costs because this provides them with the option to return the car before maintenance costs become too high. The authors demonstrate how automobile manufacturers can use the model to evaluate the effectiveness of promotional incentives, such as cash rebates, interest rate subsidies, and increased residual values.

How do you think you are doing? Managerial perceptions, aspirations and innovation

Empirical studies on the behavioral theory of the firm have been mostly silent on the possibility that managerial perceptions of relative performance may diverge from the relative performance measu...