Reference distorted prices
I 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 a¤ect high quality local firms unfairly.
|Date of creation:||13 May 2011|
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