Investment in product experimentation when consumers are loss averse

Aldo Pignataro ()
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Aldo Pignataro: ARERA

Economics Bulletin, 2019, vol. 39, issue 3, 1833-1843

Abstract: I investigate the equilibrium outcomes of a game in which a monopolist sells to loss averse consumers, who are uncertain about their tastes for the product on sale. To resolve valuation uncertainty, the monopolist can invest in product experimentation, to improve the customers' purchasing decision. I characterize the optimal monopolist's price and investment in product experimentation. The analysis suggests that, to maximize social welfare, public authorities should force the fi rm to allow product experimentation for intermediate degrees of consumer loss aversion.

Keywords: Loss Aversion; Reference Point; Product Experimentation (search for similar items in EconPapers)
JEL-codes: L2 M3 (search for similar items in EconPapers)
Date: 2019-08-11
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