A Model of Purchase Behavior under Price Uncertainty: A Real Options Approach

Abstract

Retailers, such as discount stores and supermarkets, frequently conduct price promotions, and promotions for stockable products are particularly frequent. In that category, consumers tend to purchase at a lower price and postpone purchasing at a higher price. That is, they make a decision to purchase or postpone purchasing according to their memories of past prices and the current price. In the other words, under price uncertainty, they make their purchase decision by considering the option value of postponing purchase. Therefore, we develop a consumer purchase incidence model and brand choice model considering the postpone option by using a real options approach.