Competitive persuasive advertising under consumer loss aversion

Oliver März

Economics Letters, 2019, vol. 185, issue C

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 (search for similar items in EconPapers)
JEL-codes: D90 L13 L41 M37 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:185:y:2019:i:c:s0165176519303441

DOI: 10.1016/j.econlet.2019.108690

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