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Conditional Pricing and Willingness to Pay

Dear All

I am using conditional pricing in my choice experiment where the price is related to the eco label on a products.

I have six price levels which have been divided into two level categories high price and low price. I have three sustainability labels which correspond to price (the highest environmental label corresponds to the highest price, the median environmental label corresponds to the two middle prices etc.)

I am wanting to calculate the WTP for these labels but I am not sure how I will do this if I use conditional pricing and only have two price variables (high and low)?

Any help would be much appreciated.
asked May 7 by anonymous

1 Answer

0 votes
In general, we discourage researchers from trying to compute WTP, as it is fraught with problems and likely will overstate willingness to pay.  We have written an article that discusses the challenges involved and warns against calculating WTP.  That article is at: https://www.sawtoothsoftware.com/download/techpap/monetary.pdf

That said, when conditional pricing is in place, and IF you must calculate WTP, we would follow the market simulation approach where you find the indifference price between two alternatives by finding the price that makes respondents on average indifferent between the two offerings (50/50 share split).  This is discussed in the white paper I just referenced.

This means allowing our market simulator (choice simulator) tool to automatically handle the issue of conditional pricing.  The software knows how to interpret and deal with conditional pricing.

When using conditional pricing, it is important to be on the lookout for potential significant interaction effects between the price variable and the conditional attribute.  Interaction effects can be specified in addition to the main effects in the utility estimation dialog within logit, latent class, or HB utility estimation.
answered May 7 by Bryan Orme Platinum Sawtooth Software, Inc. (163,415 points)
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