{"title":"Competing to Sell the Reference Product","authors":"","doi":"10.1007/s11151-024-09950-4","DOIUrl":null,"url":null,"abstract":"<h3>Abstract</h3> <p>In a sequential model of vertical product differentiation in which consumers are loss-averse, I analyse how firms compete to sell the reference product when they set prices. I find that there are two subgame perfect equilibria: one where the reference point for all consumers is the higher-quality product; and the other where the reference point is the lower-quality product. However, applying the risk-dominance criterion, I obtain that the sole risk-dominant equilibrium is for the higher-quality firm to sell the reference product. Since the hedonic price of the higher-quality product is the highest, consumers do not suffer any psychological disutility in the risk-dominant equilibrium.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":"80 1","pages":""},"PeriodicalIF":0.8000,"publicationDate":"2024-03-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Industrial Organization","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1007/s11151-024-09950-4","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
In a sequential model of vertical product differentiation in which consumers are loss-averse, I analyse how firms compete to sell the reference product when they set prices. I find that there are two subgame perfect equilibria: one where the reference point for all consumers is the higher-quality product; and the other where the reference point is the lower-quality product. However, applying the risk-dominance criterion, I obtain that the sole risk-dominant equilibrium is for the higher-quality firm to sell the reference product. Since the hedonic price of the higher-quality product is the highest, consumers do not suffer any psychological disutility in the risk-dominant equilibrium.
期刊介绍：
New Online Manuscript Submission System The Review of Industrial Organization publishes research papers on all aspects of industrial organization, broadly defined. A main focus is on competition and monopoly, in their many forms and processes and their effects on efficiency, innovation, and social conditions. Topics may range from the internal organization of enterprises to wide international comparisons.
The Review is also increasing its interest in papers on public policies such as antitrust, regulation, deregulation, public enterprise, and privatization. Papers may deal with any economic sectors and any developed economies.
The Review continues its primary interest in ideas that can be verified by econometric evidence, case studies, or other real conditions. But the Review also seeks papers that advance significant theories of industrial organization and policy. Papers using abstract techniques and econometric tests should present the methods and analysis in plain enough English so that non-specialist readers can evaluate the content.
The Review welcomes submissions from any source, and the Editors will make every effort to have papers reviewed quickly and to give prompt decisions. The Editors will also seek to arrange symposia on specific topics, and they are open to proposals for grouped papers. They also welcome shorter notes and commentaries on topics of interest to the profession.
Officially cited as: Rev Ind Organ
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