Creating Attachment through Advertising: Loss Aversion and Pre–Purchase Information
AbstractComplementing the existing literature on anchoring effects and loss aversion, we analyze how firms can influence loss–averse consumers’ willingness to pay by product information in the form of informative advertising rather than by prices. We find that consumers’ willingness to pay is greatest when only partial information about the product—i.e. only a fraction of product attributes—is disclosed, and that partial information disclosure is the optimal mode of advertising for a monopolistic firm. This causes the consumers’ realized product valuation to diverge from their intrinsic product valuation, which leads to a reduction of consumer surplus. Consequently, transparency policies can help to protect consumers.
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 13/177.
Length: 50 pages
Date of creation: Mar 2013
Date of revision:
Advertising; Loss Aversion; Information Disclosure.;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-06 (All new papers)
- NEP-CBE-2013-04-06 (Cognitive & Behavioural Economics)
- NEP-COM-2013-04-06 (Industrial Competition)
- NEP-CTA-2013-04-06 (Contract Theory & Applications)
- NEP-CWA-2013-04-06 (Central & Western Asia)
- NEP-MIC-2013-04-06 (Microeconomics)
- NEP-MKT-2013-04-06 (Marketing)
- NEP-UPT-2013-04-06 (Utility Models & Prospect Theory)
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