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Loss aversion, price and quality


Sibly, HA, Loss aversion, price and quality, Journal of Socio-Economics , 36, (5) pp. 771-788. ISSN 1053-5357 (2007) [Refereed Article]

DOI: doi:10.1016/j.socec.2007.01.010


The 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.

Item Details

Item Type:Refereed Article
Research Division:Economics
Research Group:Applied economics
Research Field:Industry economics and industrial organisation
Objective Division:Economic Framework
Objective Group:Microeconomics
Objective Field:Microeconomics not elsewhere classified
UTAS Author:Sibly, HA (Dr Hugh Sibly)
ID Code:50867
Year Published:2007
Deposited By:Economics and Finance
Deposited On:2007-08-01
Last Modified:2009-09-22

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