Read on TwitterMany 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">https://twitter.com/thepricin...
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& #39;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& #39;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& #39;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& #39;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.
