Premium
SELLING IN ADVANCE TO LOSS AVERSE CONSUMERS
Author(s) -
Karle Heiko,
Möller Marc
Publication year - 2020
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12429
Subject(s) - monopoly , incentive , microeconomics , competition (biology) , product (mathematics) , loss aversion , business , economics , economic surplus , risk aversion (psychology) , marketing , industrial organization , expected utility hypothesis , financial economics , welfare , market economy , ecology , geometry , mathematics , biology
This article examines the influence of information on market performance in an advance purchase setting. Information reduces the risk that an advance purchase results in a mismatch between consumer preferences and product characteristics. However, information may also raise the number of advance purchases by increasing firms' incentive to offer advance purchase discounts. Accounting for consumers' aversion toward losses/risks turns out to be crucial as it changes our assessment of policies aiming to improve consumers' information: Under monopoly, information can be detrimental both for efficiency and consumer surplus, whereas under competition, information is doubly beneficial because it mitigates intertemporal business stealing.