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Loss aversion, price and quality

journal contribution
posted on 2023-05-16, 21:20 authored by Sibly, HA
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.

History

Publication title

Journal of Socio-Economics

Volume

36

Issue

5

Pagination

771-788

ISSN

1053-5357

Department/School

TSBE

Publisher

Elsevier Inc

Place of publication

Netherlands

Repository Status

  • Restricted

Socio-economic Objectives

Microeconomics not elsewhere classified

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