Firm Behavior Under Consumer Loss Aversion
Seoul Journal of Economics 27 (No. 2 2014) 171-186
16 Pages Posted: 15 Jul 2014
Date Written: May 30, 2014
This survey aims to provide an overview of recent developments in the industrial organization literature that explores the behavior of profit-maximizing firms facing consumers with reference-dependent preferences and loss aversion. We discuss the implications of loss aversion on the practice of price discrimination, product differentiation, and incentive provision, among others. A common theme is emerging from these studies: consumer loss aversion may serve to limit the benefits from complex firm strategies that depend on the realizations of uncertainty.
Keywords: Survey, Reference-dependent preferences, loss
JEL Classification: D03, D21, D42, D43, L12, L13, M52
Suggested Citation: Suggested Citation