Competitive Persuasive Advertising Under Consumer Loss Aversion

4 Pages Posted: 5 Aug 2019

See all articles by Oliver März

Oliver März

NERA Economic Consulting, Berlin

Date Written: July 7, 2019

Abstract

I present a model to describe the effects of persuasive advertising targeted at consumers with expectation-based reference-dependent preferences. Persuasive advertising is competitive and increases the salience of advertised products while decreasing the salience of competing products. Consumers’ gain-loss utility associated with the expectation to buy the most salient product is inflated, while gain-loss utility associated with the expectation to buy the least salient product is deflated. I show that under moderate levels of loss aversion and product differentiation persuasive advertising has strictly anti-competitive effects, whenever consumers are aware of prices but uncertain about their individual match value from a purchase.

Keywords: Expectation-based loss aversion, Salience, Persuasive Advertising, Imperfect Competition

JEL Classification: D90, L13, L41, M37

Suggested Citation

März, Oliver, Competitive Persuasive Advertising Under Consumer Loss Aversion (July 7, 2019). Available at SSRN: https://ssrn.com/abstract=3429940 or http://dx.doi.org/10.2139/ssrn.3429940

Oliver März (Contact Author)

NERA Economic Consulting, Berlin ( email )

Unter den Linden 14
Berlin, 10117
Germany

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