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Loving What You Get: The Price Effects of Consumer Self-Persuasion

Matthew Nagler ()

Review of Industrial Organization, 2021, vol. 59, issue 3, No 5, 529-560

Abstract: Abstract The paper considers how consumers’ cognitive efforts at preference adjustment at the time of decision affect prices in competitive markets with differentiated products. Greater ease of self-persuasion implies higher prices when self-persuasion reinforces first impressions and lower prices when the best opportunities to persuade oneself exist for consumers with weak initial impressions. Exogenous interventions to ease decision-complementing cognition—e.g., advertising—predictably increase or reduce prices, depending upon how they are targeted. While facilitation of consumers’ adjustment always improves welfare in a covered market, firms’ appropriation of surplus may make consumers worse off even as they learn better to love what they get.

Keywords: Consumer decision-making; Differentiated products; Heterogeneous consumers; Market equilibrium; Motivated preferences; Pricing (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11151-021-09820-3

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Handle: RePEc:kap:revind:v:59:y:2021:i:3:d:10.1007_s11151-021-09820-3