Thursday, September 19, 2019

Competitive Persuasive Advertising Under Consumer Loss Aversion

Oliver März, NERA Economic Consulting examines Competitive Persuasive Advertising Under Consumer Loss Aversion.

ABSTRACT: I present a model to describe the effects of persuasive advertising targeted at consumers with expectation-based reference-dependent preferences. Persuasive advertising is competitive and increases the salience of advertised products while decreasing the salience of competing products. Consumers’ gain-loss utility associated with the expectation to buy the most salient product is inflated, while gain-loss utility associated with the expectation to buy the least salient product is deflated. I show that under moderate levels of loss aversion and product differentiation persuasive advertising has strictly anti-competitive effects, whenever consumers are aware of prices but uncertain about their individual match value from a purchase.

https://lawprofessors.typepad.com/antitrustprof_blog/2019/09/competitive-persuasive-advertising-under-consumer-loss-aversion.html

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