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Advertising and attachment: exploiting loss aversion through prepurchase information

Advertising and attachment: exploiting loss aversion through prepurchase information We analyze a monopolist's optimal advertising strategy when consumers are expectation‐based loss‐averse and uncertain about their individual match value with the product. Advertising provides verifiable match value information. It modifies the consumers' reference point and hence their willingness to pay for the product. We show that the optimal advertising strategy pools different consumer types so that some consumers engage in ex ante unfavorable trade. Incomplete informative advertising thus has a persuasive effect. This provides a rationale for policies that force the monopolist to disclose important product characteristics, not only at the point of sale, but also in all promotional materials. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Rand Journal of Economics Wiley

Advertising and attachment: exploiting loss aversion through prepurchase information

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References (28)

Publisher
Wiley
Copyright
© 2017 The RAND Corporation
ISSN
0741-6261
eISSN
1756-2171
DOI
10.1111/1756-2171.12208
Publisher site
See Article on Publisher Site

Abstract

We analyze a monopolist's optimal advertising strategy when consumers are expectation‐based loss‐averse and uncertain about their individual match value with the product. Advertising provides verifiable match value information. It modifies the consumers' reference point and hence their willingness to pay for the product. We show that the optimal advertising strategy pools different consumer types so that some consumers engage in ex ante unfavorable trade. Incomplete informative advertising thus has a persuasive effect. This provides a rationale for policies that force the monopolist to disclose important product characteristics, not only at the point of sale, but also in all promotional materials.

Journal

The Rand Journal of Economics – Wiley

Published: Jan 1, 2017

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