Factors Influencing the Validity of Measuring Willingness-to-Pay with Choice-Based Conjoint Analysis

Abstract

To maximize their profits, firms must know the demand function, which can be derived only when the firm knows consumers’ willingness to pay (WTP). Thus, firms must first measure WTP to arrive at an optimal pricing decision (Kohli and Mahajan 1991). Although more and more studies deal with WTP measurement, existing literature disagrees regarding the method that best captures consumers’ true WTP by measuring a reservation price that is nonbiased (Wertenbroch and Skiera 2002). Further empirical research is needed to clarify this question.