When a boundedly rational monopolist meets consumers with reference dependent preferences

Research output: Contribution to journalArticle

Abstract

In this paper we study the dynamic pricing strategies of a boundedly informed monopolist facing reference-dependent consumers. The monopolist is not aware of this behavioral feature of the consumers that is at the origin of the nonlinearity of an otherwise linear demand function. We identify the scenarios leading to a dynamic convergence to the optimizing strategy and at the same time we deepen the consequences of a failure in this process. In this way we are able to provide a behavioral explanation for the variability of prices and the high-low pricing strategy in monopolistic markets.
Original languageEnglish
Pages (from-to)30-45
Number of pages16
JournalJOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume184
DOIs
Publication statusPublished - 2021

Keywords

  • Adaptive expectations
  • Monopoly pricing
  • Reference-dependent preferences
  • Stability

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