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The Sunk Investment Effect:Many purchases are used in conjunction with another item that you purchased.
Think about:
- Gillette Razors
- Printer Ink Refills
- K-Cups
The investment made in those items are SUNK:
- Razor Handles
- Printers
- Keurig Machines https://twitter.com/thepricingdude/status/1311296478950891522
Your price sensitivity for products used with them is reduced.
This is the sunk investment effect,
which states that you will be less sensitive to the price of a
product the greater the sunk investment you've made
in anticipation of its continued use.
This is the sunk investment effect,
which states that you will be less sensitive to the price of a
product the greater the sunk investment you've made
in anticipation of its continued use.
Whenever products are consumed in conjunction with
sunk complementary investments, the long-run price
sensitivity for those products will be greater than the
short-run sensitivity.
Think about it another way....
Gas prices are at an all-time low
sunk complementary investments, the long-run price
sensitivity for those products will be greater than the
short-run sensitivity.
Think about it another way....
Gas prices are at an all-time low
You come up with the brilliant idea to purchase Hummer
during your mid-life crisis.
Gas prices sky-rocket during year 3 of ownership.
Your short-run price-sensitivity will be lower (i.e. you won't
run and sell the Hummer for a Toyota Prius).
during your mid-life crisis.
Gas prices sky-rocket during year 3 of ownership.
Your short-run price-sensitivity will be lower (i.e. you won't
run and sell the Hummer for a Toyota Prius).
However, if gas prices are expected to stay sky-high for
the next few years,
your long-run price-sensitivity will be higher and you will
begin to make plans on how to phase out your vehicle
choice.
the next few years,
your long-run price-sensitivity will be higher and you will
begin to make plans on how to phase out your vehicle
choice.
