Competition under consumer loss aversion

Heiko Karle and Martin Peitz

No 12-08, Working Papers from University of Mannheim, Department of Economics

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.

Keywords: Contextual loss aversion; reference-dependent utility; behavioral industrial organization; imperfect competition; product differentiation (search for similar items in EconPapers)
JEL-codes: D83 L13 L41 M37 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Competition under consumer loss aversion (2014)
Working Paper: Competition under consumer loss aversion (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:wpaper:31642

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