Competitive strategy when consumers are affected by reference prices

Ofer Azar

Journal of Economic Psychology, 2013, vol. 39, issue C, 327-340

Abstract: The article presents a model that analyzes the optimal strategy of multi-product firms when consumers are affected by reference prices. Generally, the stronger the consideration of reference prices is, the more intensified the competition is and the lower are the prices and profits. In some cases it becomes optimal to sell the good for which consideration of reference prices is stronger at a negative markup. The model offers several practical implications, for example, suggesting that firms should usually avoid focusing advertisements on the price differences between the firm and its competitors.

Keywords: Behavioral economics; Reference prices; Multi-product firms; Competitive strategy; Loss leaders; Retailing (search for similar items in EconPapers)
JEL-codes: D03 D43 L13 M20 M31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:39:y:2013:i:c:p:327-340

DOI: 10.1016/j.joep.2013.09.008

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