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Investment in product experimentation when consumers are loss averse

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  • Aldo Pignataro

    (ARERA)

Abstract

I investigate the equilibrium outcomes of a game in which a monopolist sells to loss averse consumers, who are uncertain about their tastes for the product on sale. To resolve valuation uncertainty, the monopolist can invest in product experimentation, to improve the customers' purchasing decision. I characterize the optimal monopolist's price and investment in product experimentation. The analysis suggests that, to maximize social welfare, public authorities should force the fi rm to allow product experimentation for intermediate degrees of consumer loss aversion.

Suggested Citation

  • Aldo Pignataro, 2019. "Investment in product experimentation when consumers are loss averse," Economics Bulletin, AccessEcon, vol. 39(3), pages 1833-1843.
    • Handle: RePEc:ebl:ecbull:eb-19-00485
    as

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    References listed on IDEAS

    as
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    3. Piccolo, Salvatore & Pignataro, Aldo, 2018. "Consumer loss aversion, product experimentation and tacit collusion," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 49-77.
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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