Willingness to pay

The willingness to pay (English Willingness to pay, WTP ) of consumers is a central concept in economics.

Definition

In the economic literature, three definitions of the willingness to pay of a consumer distinction is primarily:

1 The willingness to pay is the maximum price to which a consumer is definitely willing to buy one unit of a product ( 100 % probability of purchase, Eng. Floor reservation price ).

2 The willingness to pay is the maximum price at which a consumer is indifferent between buying or not buying (50 % probability of purchase, Eng. Indifference reservation price ).

3 The willingness to pay corresponds to the minimum price at which a consumer is definitely no longer willing to buy one unit of a certain product (0% purchase probability, Eng. Ceiling reservation price ).

In a more abstract version consist willingness to pay not only for the purchase of a market good, as set in the definitions above advance. Willingness to pay are a common expression of the preferences of a business entity with regard to the obtaining of an advantage or to avert a disadvantage.

Measurement

A number of methods have been developed in economics to measure the willingness to pay. These methods can be distinguished as to whether they measure the hypothetical willingness to pay ( hypothetical willingness to pay, HWTP ) or the actual willingness to pay (actual willingness to pay, AWTP ). Hypothetical WTP are measured in a hypothetical context, that is, the consumer need not bear the economic consequences of their quotation upon the indication of its willingness to pay, while the actual willingness to pay can be measured in a real purchase context (that is, consumers usually buy the underlying the transaction to the Good you mentioned willingness to pay ).