Price versus quantity in a duopoly of vertical differentiation with loss-averse consumers

In a model à la Mussa and Rosen (1978) in which consumers are loss-averse, I check the robustness of the result obtained by Tanaka (2001). As he did, I find that the quantity contract is a dominant strategy for both firms. Thus, Cournot is the outcome in equilibrium. Finally, I find that loss aversi...

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Bibliographic Details
Published in:	Research in economics Vol. 75; no. 1; pp. 1 - 6
Main Author:	Martínez-Sánchez, Francisco
Format:	Journal Article
Language:	English
Published:	Elsevier Ltd 01-03-2021
Subjects:	Loss aversion Price and quantity contracts Vertical product differentiation Vertical product differentiation D43 D90 Price and quantity contracts Loss aversion L13
Online Access:	Get full text
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Summary:	In a model à la Mussa and Rosen (1978) in which consumers are loss-averse, I check the robustness of the result obtained by Tanaka (2001). As he did, I find that the quantity contract is a dominant strategy for both firms. Thus, Cournot is the outcome in equilibrium. Finally, I find that loss aversion in general intensifies competition.
ISSN:	1090-9443 1090-9451
DOI:	10.1016/j.rie.2020.10.008