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Loss averse customers and price inflexibility

Citation

Sibly, HA, Loss averse customers and price inflexibility, Behavioural Macroeconomics, The International Library of Critical Writings in Economics 265, Edward Elgar Publishing Limited, IM McDonald (ed), United Kingdom, pp. 208-225. ISBN 978 1 78100 258 2 (2012) [Research Book Chapter]

Official URL: http://www.e-elgar.com

Abstract

A neoclassical model of monopoly is extended to incorporate the influence of customers' disposition toward a firm. Customers' disposition - captured by a variable called 'disenchantment' - and price are the determinants of a firm's demand. Disenchantment is positively related to the difference between the price the firm sets and the customers' 'reference price'. It is demonstrated that when customers are loss averse, the profit maximising price is rigid in the face of demand and cost shocks.

Item Details

Item Type:Research Book Chapter
Research Division:Economics
Research Group:Applied Economics
Research Field:Macroeconomics (incl. Monetary and Fiscal Theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
Author:Sibly, HA (Dr Hugh Sibly)
ID Code:86614
Year Published:2012
Deposited By:Economics and Finance
Deposited On:2013-10-02
Last Modified:2017-02-13
Downloads:0

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