Nothing so certain as your anchors? A consumer bias that might lower prices

Barna Bakó and András Kálecz-Simon

Corvinus Economics Working Papers (CEWP) from Corvinus University of Budapest

Abstract: Anchoring is a well-known decision-making bias: original guesses for a certain question could act as anchors and could influence our final answers. Reference prices - in a similar fashion - can lead to a bias in consumer valuations, and thus consumer demand will be coherent but not one derived from a utility framework. In our paper we investigate the effect of the existence of anchoring on how oligopolistic firms might change their pricing strategy. More specifically, we analyze the effect of anchoring on pricing when differentiated firms compete in Bertrand fashion. We show that if the anchoring effect is smaller than a threshold the average price is lower compared to the no-anchoring case.

Keywords: anchoring; consumer bias; Bertrand competition (search for similar items in EconPapers)
JEL-codes: C72 D11 D43 (search for similar items in EconPapers)
Date: 2014-06-29
New Economics Papers: this item is included in nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:cvh:coecwp:2014/10

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