Consumer Loss Aversion and Scale-Dependent Psychological Switching Costs

We consider the Salop (1979) model of product differentiation and assume that consumers are uncertain about qualities prices firms’ products. They can inspect all products at zero cost. A share is expectation-based loss averse. For these consumers, a purchase plan, which involves buying varying quality price with positive probability, creates disutility from gain-loss sensations. Even modest degrees aversion they may refrain inspecting choose an individual default strictly dominated in terms surplus. Firms’ strategic behavior exacerbates scope for this effect. The generates “scale-dependent psychological switching costs” increase value transaction. find empirical evidence predicted association between new survey data.