Reference price distortion
AbstractI show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their “valuation”, and for why trade might be detrimental to welfare.
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Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 177.
Date of creation: Dec 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-12 (All new papers)
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