The DOI matches its Crossref record; 7 of the 7 references it cites were found in a registry or an index.
Competition and Price Variation when Consumers Are Loss Averse
Abstract
We modify the Salop (1979) model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase. Consumers' sensitivity to losses in money increases the price responsiveness of demand—and hence the intensity of competition—at higher relative to lower market prices, reducing or eliminating price variation both within and between products. When firms face common stochastic costs, in any symmetric equilibrium the markup is strictly decreasing in cost. Even when firms face different cost distributions, we identify conditions under which a focal-price equilibrium (where firms always charge the same “focal” price) exists, and conditions under which any equilibrium is focal. (JEL D11, D43, D81, L13)
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Cites
Advances in prospect theory: Cumulative representation of uncertainty
Tversky, A., & Kahneman, D. (1992) · Journal of Risk and Uncertainty · doi:10.1007/bf00122574 · Cited by 15,467
Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991) · Journal of Economic Perspectives · doi:10.1257/jep.5.1.193 · Cited by 5,019
Experimental Tests of the Endowment Effect and the Coase Theorem
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990) · Journal of Political Economy · doi:10.1086/261737 · Cited by 3,194
A Model of Reference-Dependent Preferences
Koszegi, B., & Rabin, M. (2006) · The Quarterly Journal of Economics · doi:10.1093/qje/121.4.1133 · Cited by 2,728
Loss Aversion and Seller Behavior: Evidence from the Housing Market
Genesove, D., & Mayer, C. (2001) · The Quarterly Journal of Economics · doi:10.1162/003355301753265561 · Cited by 1,628
Modeling Loss Aversion and Reference Dependence Effects on Brand Choice
Hardie, B. G. S., Johnson, E. J., & Fader, P. S. (1993) · Marketing Science · doi:10.1287/mksc.12.4.378 · Cited by 903 · cited 1×
“To introduce consumer loss aversion, we build on the methods of Kőszegi and Rabin (forthcoming) and Heidhues and Kőszegi (2004). By basing the reference-dependent “gain-loss utility” on classical “intrinsic utility” and fully endogenizing the reference point, this approach allows little arbitrariness in modeling choic…”
MethodThe Role of Price in Multi-Attribute Product Evaluations
Erickson, G. M., & Johansson, J. K. (1985) · Journal of Consumer Research · doi:10.1086/208508 · Cited by 412
Cited by
A Model of Reference-Dependent Preferences
Koszegi, B., & Rabin, M. (2006) · The Quarterly Journal of Economics · doi:10.1093/qje/121.4.1133 · Cited by 2,728
Psychology and Economics: Evidence from the Field
DellaVigna, S. (2009) · Journal of Economic Literature · doi:10.1257/jel.47.2.315 · Cited by 2,365
Metadata
- Authors
- Heidhues, P., & Kőszegi, B.
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2008-08-01
- Volume
- 98
- Issue
- 4
- Pages
- 1245-1268
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W2012624057
- Cited by
- 313
- References
- 7
- FWCI
- 55.42
- Type
- journal article
- Language
- en
- Open access
- closed
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