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Aldo Pignataro
 
''Investment in product experimentation when consumers are loss averse''
( 2019, Vol. 39 No.3 )
 
 
I investigate the equilibrium outcomes of a game in which a monopolist sells to loss averse consumers, who are uncertain about their tastes for the product on sale. To resolve valuation uncertainty, the monopolist can invest in product experimentation, to improve the customers' purchasing decision. I characterize the optimal monopolist's price and investment in product experimentation. The analysis suggests that, to maximize social welfare, public authorities should force the fi rm to allow product experimentation for intermediate degrees of consumer loss aversion.
 
 
Keywords: Loss Aversion, Reference Point, Product Experimentation
JEL: L2 - Firm Objectives, Organization, and Behavior: General
M3 - Marketing and Advertising: General
 
Manuscript Received : May 28 2019 Manuscript Accepted : Aug 11 2019

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