Reference price distortion

Jozsef Sakovics

Research output: Working paper

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 be detrimental to welfare.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages26
Publication statusPublished - 5 Dec 2007

Publication series

NameESE Discussion Papers
No.177

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