Competition under consumer loss aversion

Heiko Karle and Martin Peitz

RAND Journal of Economics, 2014, vol. 45, issue 1, 1-31

Abstract: type="main">

We address the effect of expectation-based consumer loss aversion on firm strategy in imperfect competition. Consumers are fully informed about match value and price at the moment of purchase. However, some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match value and price distribution, whereas others are perfectly informed all the time. We show that if firms have symmetric costs, a larger share of informed consumers leads to a more competitive outcome. The reverse holds if cost asymmetry in duopoly is sufficiently large.

Date: 2014
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Working Paper: Competition under consumer loss aversion (2014)
Working Paper: Competition under consumer loss aversion (2012)
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