The New Economic Theory of Consumer Behavior: An Interpretive Essay

  • Ratchford B
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Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This paper attempts to summarize and integrate some recent economic theories of consumer behavior based on demand for underlying character-istics of goods. The implications of these theories for research in con-sumer behavior are discussed, and an attempt is made to compare and integrate these theories with recent developments in multi-attribute scaling and attitude models. Recently developed models of consumer behavior are based primarily on concepts drawn from sociology, psychology or the theory of stochastic processes. Their authors have found little value in what economists have had to say about the subject.' Possibly this is because the traditional economic model of consumer behavior has, in the words of one economist, "disappointingly few implications for empirical research.'2 However, led by the pioneering work of Lancaster (1966, 1971), Baumol (1967), Rosen (1974), and others, the eco-nomic theory of the consumer has recently undergone some revolutionary changes. While making no attempt at a complete literature review, this article tries to pre-sent an integrative summary of a number of these new developments in economics, and attempts to compare and contrast these with approaches employed in other fields. Although the paper is aimed primarily at diffusing the "new economics" to non-economists, the attempt to integrate some rather diverse strains of thought should be of value to economists as well. Basically, the recent developments are in two related areas. First is an economic theory of brand preference which is based on the premise that goods are valued for the attributes which they possess, and that differ-entiated products are essentially different packages of attributes. This view of products is, of course, much the same as employed in applications of multidimenisional scaling and multi-attribute attitude models in explain-ing brand preference.3 The second major development is an economic theory of the consumer as a producer in many of his activities. Thus, analogous to a business firm, a consumer combines goods with his own labor (time) to produce his own satisfaction. Because it would be impossible to give a complete presentation of both of these areas in one paper, this study is con-fined to the first of the above areas; the new economic theorv of brand preference. This theory was felt to be particularly relevant for this paper because of its rela-tion to other theories of multi-attribute decision making in constumer behavior. Because it is certainly the most comprehensive eco-nomic theory of multi-attribute brand choice, the first three sections of this paper are devoted to Lancaster's model.4 The first section outlines the broad framework of the model. The second section of this paper de-scribes and discusses four contributions of Lancaster's model which should be of major interest to a general student of consumer behavior. The third section shows how the parameters of the Lancaster model might be estimated in practice, and that these parameters turn out to be essentially the same as those estimated by several scaliing algorithms currently used. Since Lan-. caster's work applies mainly to goods available in highly divisible uniits, that is, those which are frequently pur-3 For an excellent presentation of the use of multidimen-sional scaling models in explaining brand preferences see Green and Wind (1973); for an outstanding view of the application of multi-attribute attitude models in consumer behavior see Wilkie and Pessemeier (1973). 4 A model which is very similar to Lancaster's was originally developed in a doctoral dissertation by Ironmonger in 1961. However, Ironmonger did not publish this work until 1972, a year after Lancaster's book appeared. Another model which is virtually identical to Lancaster's was developed indepen-dentlv bv RBumol (1967)

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  • Brian T Ratchford

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