Reference Distorted Prices

Jozsef Sakovics

Research output: Contribution to journalArticlepeer-review

Abstract

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
Volume9
Issue number4
DOIs
Publication statusPublished - Dec 2011

Keywords

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

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