Regular prices and sales

Arbeitspapier

We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Koszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to costless for the consumer to observe the realized price of the product, then – in a pattern consistent with several recently documented facts regarding supermarket pricing – the monopolist chooses low and variable “sale” prices with some probability and a high and sticky “regular” price with the complementary probability. Realizing that she will buy at the sale prices and hence that she will purchase with positive probability, the consumer chooses to avoid the painful uncertainty in whether she will get the product by buying also at the regular price. If it is more costly for the consumer to observe the realized price, then – in a pattern consistent with the pricing behavior of some other retailers (e.g. movie theaters) – the monopolist chooses a sticky price and holds no sales. In this case, a sale is less tempting and hence less effective in generating an expectation to purchase with positive probability. We also show that ex-ante competition for loyal consumers leads to sticky pricing while ex-post competition leads to marginal-cost pricing, and discuss several other extensions of the model.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ESMT Working Paper ; No. 10-008

Klassifikation und Themen

• Klassifikation: Management ; Consumer Economics: Theory ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Criteria for Decision-Making under Risk and Uncertainty ; Oligopoly and Other Imperfect Markets
• Thema: reference-dependent utility ; gain-loss utility ; loss aversion ; sticky prices ; sales ; supermarket pricing ; Einzelhandelspreispolitik ; Preisdifferenzierung ; Preisrigidität ; Konsumentenverhalten ; Preistheorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Heidhues, Paul ; Koszegi, Botond
• Ereignis: Veröffentlichung
• (wer): European School of Management and Technology (ESMT)
• (wo): Berlin
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/96537
• URN: urn:nbn:de:101:1-201106143726
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ