Reference Distorted Prices

Research output: Contribution to journalArticlepeer-review


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 affect high quality local firms "unfairly".

Original languageEnglish
Pages (from-to)339-363
Number of pages25
JournalQuantitative Marketing and Economics
Issue number4
Publication statusPublished - Dec 2011


  • Reference price
  • Soft budget constraint
  • Transaction contraint
  • Transaction utility
  • Leftover utility
  • D11


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