Abstract

http://ssrn.com/abstract=1611441
 
 

References (20)



 
 

Citations (3)



 


 



Pricing and Information Disclosure in Markets with Loss-Averse Consumers


Heiko Karle


ETH Zurich - Center for Law and Economics; ETH Zurich

Martin Peitz


University of Mannheim - Department of Economics

April 2010

CEPR Discussion Paper No. DP7785

Abstract:     
We develop a theory of imperfect competition with loss-averse consumers. All consumers are fully informed about match value and price at the time they make their purchasing decision. However, a share of consumers are initially uncertain about their tastes and form a reference point consisting of an expected match value and an expected price distribution, while other consumers are perfectly informed all the time. We derive pricing implications in duopoly with asymmetric firms. In particular, we show that a market may exhibit more price variation the larger the share of uninformed, loss-averse consumers. We also derive implications for firm strategy and public policy concerning firms’ incentives to inform consumers about their match value prior to forming their reference point.

Number of Pages in PDF File: 54

Keywords: Advertising, Behavioral Industrial Organization, Imperfect Competition, Information Disclosure, Loss Aversion, Price Variation, Product Differentiation, Reference-Dependent Utility

JEL Classification: D83, L13, L41, M37

working papers series





Date posted: May 19, 2010  

Suggested Citation

Karle, Heiko and Peitz, Martin, Pricing and Information Disclosure in Markets with Loss-Averse Consumers (April 2010). CEPR Discussion Paper No. DP7785. Available at SSRN: http://ssrn.com/abstract=1611441

Contact Information

Heiko Karle (Contact Author)
ETH Zurich - Center for Law and Economics ( email )
IFW E 45.1
Haldeneggsteig 4
Zurich, 8092
Switzerland
ETH Zurich ( email )
IFW E 45.1
Haldeneggsteig 4
Zurich, 8092
Switzerland
+41-44-632-6029 (Phone)
Martin Peitz
University of Mannheim - Department of Economics ( email )
D-68131 Mannheim
Germany
+49 621 181-1835 (Phone)
HOME PAGE: http://peitz.vwl.uni-mannheim.de/
Feedback to SSRN


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