Competitive Persuasive Advertising Under Consumer Loss Aversion
4 Pages Posted: 5 Aug 2019
Date Written: July 7, 2019
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
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