Price discrimination with loss averse consumers

Jong Hee Hahn, Jinwoo Kim, Sang Hyun Kim, Jihong Lee

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper proposes a theory of price discrimination based on consumer loss aversion. A seller offers a menu of bundles before a consumer learns his willingness to pay, and the consumer experiences gain–loss utility with reference to his prior (rational) expectations about contingent consumption. With binary consumer types, the seller finds it optimal to abandon screening under an intermediate range of loss aversion if the low willingness-to-pay consumer is sufficiently likely. We also identify sufficient conditions under which partial or full pooling dominates screening with a continuum of types. Our predictions are consistent with several observed practices of price discrimination.

Original languageEnglish
Pages (from-to)681-728
Number of pages48
JournalEconomic Theory
Volume65
Issue number3
DOIs
Publication statusPublished - 2018 May 1

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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