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Loss aversion, price and quality
journal contribution
posted on 2023-05-16, 21:20 authored by Sibly, HAThe Spence model [Spence, A.M., 1975. Monopoly, quality and regulation. Bell Journal of Economics 417-429] is extended so that customers' utility depends on their disposition toward the firm in addition to quantity and quality of the good consumed. Disposition is determined by customers' 'reference-dependent' perception of firm's pricing and quality decisions. The profit maximising and efficient price and quality combinations are derived under the assumption that customers exhibit loss aversion with respect to the reference price and quality level. It is shown that adjustment to a change in economic conditions may call for price rigidity, quality rigidity or both depending on the level of the reference price and quality. © 2007 Elsevier Inc. All rights reserved.
History
Publication title
Journal of Socio-EconomicsVolume
36Issue
5Pagination
771-788ISSN
1053-5357Department/School
TSBEPublisher
Elsevier IncPlace of publication
NetherlandsRepository Status
- Restricted