Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94184
Authors: 
Karle, Heiko
Peitz, Martin
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper 312
Abstract: 
Abstract: We develop a theory of imperfect competition with loss-averse consumers. All consumers are fully informed about match value and price at the time they make their purchasing decision. However, a share of consumers are initially uncertain about their tastes and form a reference point consisting of an expected match value and an expected price distribution, while other consumers are perfectly informed all the time. We derive pricing implications in duopoly with asymmetric ?rms. In particular, we show that a market may exhibit more price variation the larger the share of uninformed, loss-averse consumers. We also derive implications for ?rm strategy and public policy concerning ?rms' incentives to inform consumers about their match value prior to forming their reference point.
Subjects: 
Loss Aversion
Reference-Dependent Utility
Information Disclosure
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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