Corvinus
Corvinus

Nothing so certain as your anchors? A consumer bias that might lower prices

Bakó, Barna and Kálecz-Simon, András (2014) Nothing so certain as your anchors? A consumer bias that might lower prices. Working Paper. Corvinus University of Budapest Faculty of Economics, Budapest.

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Abstract

Anchoring is a well-known decision-making bias: original guesses for a certain question could act as anchors and could influence our final answers. Reference prices - in a similar fashion - can lead to a bias in consumer valuations, and thus consumer demand will be coherent but not one derived from a utility framework. In our paper we investigate the effect of the existence of anchoring on how oligopolistic firms might change their pricing strategy. More specifically, we analyze the effect of anchoring on pricing when differentiated firms compete in Bertrand fashion. We show that if the anchoring effect is smaller than a threshold the average price is lower compared to the no-anchoring case.

Item Type:Monograph (Working Paper)
Series Name:Corvinus Economics Working Papers - CEWP
Series Number / Identification Number:2014/10
Uncontrolled Keywords:anchoring, consumer bias, Bertrand competition
JEL classification:C72 - Noncooperative Games
D11 - Consumer Economics: Theory
D43 - Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
Subjects:Mathematics, Econometrics
Projects:MTA-BCE "Lendület" Strategic Interactions Research Group
ID Code:1639
Deposited By: Ádám Hoffmann
Deposited On:09 Jul 2014 08:56
Last Modified:25 Jul 2014 11:40

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