Anchoring, Reference Prices, and List Price Collusion

Johannes Paha

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: The firms in this model set non-binding list prices before competing for buyers by non-cooperatively granting discounts. Each firm has an incentive to set a high list price if, for example, the customers anchor their willingness-to-pay on the list price. However, list price competition occurs if customers are loss-averse with respect to firms charging above-average list prices. The firms may thus find agreements on higher list prices profitable, even if they continue granting discounts non-cooperatively. Most importantly, for being an equilibrium of the game, such agreements do not require a dynamic game or mutual monitoring of the list prices.

Keywords: Anchoring; behavioral industrial organization; collusion; list price; loss aversion; reference price (search for similar items in EconPapers)
JEL-codes: D90 D91 K21 L41 M30 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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