Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Industrial Organisation IV No. E26-V1
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.
Anchoring behavioral industrial organization collusion list price loss aversion reference price