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Conditional Pricing for CBC


I am working with a colleague on a CBC and we are using conditional pricing.

Why does the use of conditional pricing not lead to the same downfalls as prohibitions?

My understanding is that prohibitions are not ideal because they add correlation in the design matrix, which can result in predictions that are less accurate.

If my understanding of prohibitions is correct above, I'm just trying to understand how the conditional pricing gets away with not having the same issue.

To me, they seem similar.
asked Oct 16, 2020 by anonymous

1 Answer

0 votes
Conditional pricing tables don't actually have any effect on the design.  With conditional pricing tables you typically are estimating a proportional shift in price rather than a specific value.  So you set up an average price, for example, as level 2 of your price attribute, and then level 1 is always a -15% decrease for all products and level 3 is always a 20% increase in price.  So your utility model isn't estimating any specific price.

Prohibitions, on the other hand, create correlation in the design and make it more difficult to separate out the effect of, say, a brand change and a price change.  If you make Brand A on average show at lower prices due to prohibitions, it's difficult to figure out if someone truly likes Brand A or if they are just motivated by lower prices.

This paper is also a nice resource: https://sawtoothsoftware.com/resources/technical-papers/three-ways-to-treat-overall-price-in-conjoint-analysis
answered Oct 16, 2020 by Brian McEwan Platinum Sawtooth Software, Inc. (50,625 points)