Product lotteries and loss aversion

Arbeitspapier

Product lotteries are a sales strategy where companies hide features of differentiated products from consumers until the purchase is complete. I identify loss aversion as an important factor explaining the existence of vertical product lotteries. I consider a profit-maximizing monopolist serving loss-averse consumers with rational expectations about the lottery. I find that the optimal strategy consists of offering a premium product with high and deterministic quality and a lottery with stochastic and lower expected quality. When consumers are reasonably loss averse, I show that the profit increase from adding a quality lottery exceeds 10% compared to the case without a lottery.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: WWZ Working Paper ; No. 2022/06

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Market Structure, Pricing, and Design: Monopoly ; Criteria for Decision-Making under Risk and Uncertainty ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Monopoly; Monopolization Strategies
• Thema: Product lotteries ; Probabilistic selling ; Reference-dependent preferences ; Loss aversion

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Schäfers, Sebastian
• Ereignis: Veröffentlichung
• (wer): University of Basel, Center of Business and Economics (WWZ)
• (wo): Basel
• (wann): 2022

Weitere Informationen

• DOI: doi:10.5451/unibas-ep89788
• Handle: http://hdl.handle.net/10419/278183
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ