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Price Discrimination with Loss Averse and Horizontally Differentiated Consumers

Author

Listed:
  • Jong-Hee Hahn

    (Yonsei University)

  • Jinwoo Kim

    (Seoul National University)

  • Sang-Hyun Kim

    (Yonsei University)

  • Jihong Lee

    (Seoul National University)

Abstract

This paper considers a monopolist seller facing horizontally differentiated consumers, whose preferences are reference-dependent and loss averse in the frame of Kőszegi and Rabin (2006). Our results on optimal menu suggest that consumer loss aversion does not necessarily limit the benefits of screening under the horizontal demand structure, in contrast to the findings of Hahn, Kim, Kim and Lee (2018) and Herweg and Mierendorff (2013) who consider the case of vertically differentiated preferences.

Suggested Citation

  • 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.
    • Handle: RePEc:kea:keappr:ker-20180701-34-2-01
    as

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    File URL: http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20180701-34-2-01.pdf
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    References listed on IDEAS

    as
    1. Fabian Herweg & Konrad Mierendorff, 2013. "Uncertain Demand, Consumer Loss Aversion, And Flat-Rate Tariffs," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 399-432, April.
    2. Jong-Hee Hahn & Jinwoo Kim & Sang-Hyun Kim & Jihong Lee, 2018. "Price discrimination with loss averse consumers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(3), pages 681-728, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tianxin Zou & Bo Zhou & Baojun Jiang, 2020. "Product-Line Design in the Presence of Consumers’ Anticipated Regret," Management Science, INFORMS, vol. 66(12), pages 5665-5682, December.
    2. Wong, Kit Pong, 2024. "Optimal nonlinear pricing by a monopoly with smooth ambiguity preferences," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 594-604.
    3. Francisco Martínez-Sánchez, 2024. "Competing to Sell the Reference Product," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(4), pages 515-531, June.
    4. Carroni, Elias & Mantovani, Andrea & Minniti, Antonio, 2023. "Price signaling with salient-thinking consumers," Games and Economic Behavior, Elsevier, vol. 138(C), pages 238-253.
    5. 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.
    6. David Martimort & Lars A. Stole, 2020. "Nonlinear Pricing with Average-Price Bias," American Economic Review: Insights, American Economic Association, vol. 2(3), pages 375-396, September.
    7. Destan, Cavit Görkem & Yılmaz, Murat, 2020. "Nonlinear pricing under inequity aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 223-244.
    8. Phuong Ho, 2023. "Nonlinear pricing, biased consumers, and regulatory policy," Journal of Economics, Springer, vol. 138(2), pages 149-164, March.
    9. Leontiou, Anastasia & Ziros, Nicholas, 2024. "“Tacit bundling” among rivals: Limited-availability bargains for loss-averse consumers," European Economic Review, Elsevier, vol. 165(C).
    10. Martínez-Sánchez, Francisco, 2020. "Preventing commercial piracy when consumers are loss averse," Information Economics and Policy, Elsevier, vol. 53(C).
    11. Fu, Qiang & Lyu, Youji & Wu, Zenan & Zhang, Yuanjie, 2022. "Expectations-based loss aversion in contests," Games and Economic Behavior, Elsevier, vol. 133(C), pages 1-27.

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    More about this item

    Keywords

    Price Discrimination; Hotelling Preferences; Reference-dependent Preferences; Loss aversion; Personal Equilibrium; Preferred Personal Equilibrium;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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