Price Discrimination with Loss Averse Consumers

Jong-Hee Hahn, Jinwoo Kim, Sang-Hyun Kim and Jihong Lee
Additional contact information
Jinwoo Kim: Seoul National University
Jihong Lee: Seoul National University

No 2016rwp-97, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper proposes a theory of price discrimination based on consumer loss aver- sion. A seller offers a menu of bundles before a consumer learns his willingness to pay, and the consumer experiences gain-loss utility with reference to his prior (rational) ex- pectations about contingent consumption. With binary consumer types, the seller fnds it optimal to abandon screening under an intermediate range of loss aversion if the low willingness-to-pay consumer is suffciently likely. We also identify suffcient conditions under which partial or full pooling dominates screening with a continuum of types. Our predictions are consistent with several observed practices of price discrimination.

Keywords: Reference-dependent preferences; loss aversion; price discrimination; per- sonal equilibrium; preferred personal equilibrium. (search for similar items in EconPapers)
JEL-codes: D03 D42 D82 D86 L11 (search for similar items in EconPapers)
Pages: 54pages
Date: 2016-11
New Economics Papers: this item is included in nep-cbe, nep-com, nep-ind, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Price discrimination with loss averse consumers (2018)
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