Price discrimination with loss averse consumers

Jong-Hee Hahn, Jinwoo Kim (), Sang-Hyun Kim and Jihong Lee ()
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Jinwoo Kim: Seoul National University
Jihong Lee: Seoul National University

Economic Theory, 2018, vol. 65, issue 3, No 7, 728 pages

Abstract: Abstract This paper proposes a theory of price discrimination based on consumer loss aversion. 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) expectations about contingent consumption. With binary consumer types, the seller finds it optimal to abandon screening under an intermediate range of loss aversion if the low willingness-to-pay consumer is sufficiently likely. We also identify sufficient 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; Personal equilibrium; Preferred personal equilibrium (search for similar items in EconPapers)
JEL-codes: D03 D42 D82 D86 L11 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (20)

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Working Paper: Price Discrimination with Loss Averse Consumers (2016)
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DOI: 10.1007/s00199-017-1035-2

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