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Price versus quantity in a duopoly of vertical differentiation with loss-averse consumers

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  • Martínez-Sánchez, Francisco

Abstract

In a model à la Mussa and Rosen (1978) in which consumers are loss-averse, I check the robustness of the result obtained by Tanaka (2001). As he did, I find that the quantity contract is a dominant strategy for both firms. Thus, Cournot is the outcome in equilibrium. Finally, I find that loss aversion in general intensifies competition.

Suggested Citation

  • Martínez-Sánchez, Francisco, 2021. "Price versus quantity in a duopoly of vertical differentiation with loss-averse consumers," Research in Economics, Elsevier, vol. 75(1), pages 1-6.
    • Handle: RePEc:eee:reecon:v:75:y:2021:i:1:p:1-6
    DOI: 10.1016/j.rie.2020.10.008
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    References listed on IDEAS

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    1. Jong-Hee Hahn & Jinwoo Kim & Sang-Hyun Kim & Jihong Lee, 2018. "Price Discrimination with Loss Averse and Horizontally Differentiated Consumers," Korean Economic Review, Korean Economic Association, vol. 34, pages 117-129.
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    4. Carbajal, Juan Carlos & Ely, Jeffrey C., 2016. "A model of price discrimination under loss aversion and state-contingent reference points," Theoretical Economics, Econometric Society, vol. 11(2), May.
    5. Jidong Zhou, 2011. "Reference Dependence and Market Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1073-1097, December.
    6. Heiko Karle & Martin Peitz, 2014. "Competition under consumer loss aversion," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 1-31, March.
    7. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    8. Matsumura, Toshihiro & Ogawa, Akira, 2012. "Price versus quantity in a mixed duopoly," Economics Letters, Elsevier, vol. 116(2), pages 174-177.
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    More about this item

    Keywords

    Loss aversion; Price and quantity contracts; Vertical product differentiation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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