Competition under consumer loss aversion


Karle, Heiko ; Peitz, Martin


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URL: https://ub-madoc.bib.uni-mannheim.de/31642
URN: urn:nbn:de:bsz:180-madoc-316425
Document Type: Working paper
Year of publication: 2012
The title of a journal, publication series: Working Paper Series
Volume: 12-08
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Industrieökonomik, Wettbewerbspolitik u. Regulierung (Peitz 2007-)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: D83 , L13 , L41 , M37,
Keywords (English): Contextual loss aversion , reference-dependent utility , behavioral industrial organization , imperfect competition , product differentiation
Abstract: We address the effect of contextual consumer loss aversion on firm strategy in imperfect competition. Consumers are fully informed about match value and price at the moment of purchase. However, some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match—value and price distribution, while others are perfectly informed all the time. We show that, in duopoly, a larger share of informed consumers leads to a less competitive outcome if the asymmetry between firms is sufficiently large and that narrowing the set of products which consumers consider leads to a more competitive outcome.

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Karle, Heiko ; Peitz, Martin (2012) Competition under consumer loss aversion. Open Access Working Paper Series Mannheim 12-08 [Working paper]
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