Product Lotteries and Loss Aversion

Schäfers, Sebastian. (2022) Product Lotteries and Loss Aversion. WWZ Working Paper, 2022 (06).

[img] PDF - Published Version

Official URL: https://edoc.unibas.ch/89788/

Downloads: Statistics Overview


Product lotteries are a sales strategy where companies hide features of differentiated products from consumers until the purchase is complete. I identify loss aversion as an important factor explaining the existence of vertical product lotteries. I consider a profit-maximizing monopolist serving loss-averse consumers with rational expectations about the lottery. I find that the optimal strategy consists of offering a premium product with high and deterministic quality and a lottery with stochastic and lower expected quality. When consumers are reasonably loss averse, I show that the profit increase from adding a quality lottery exceeds 10% compared to the case without a lottery.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Industrial Organization (Roux)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Schäfers, Sebastian
Item Type:Working Paper
Number of Pages:36
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Identification Number:
  • handle: RePEc:bsl:wpaper:2022/06
edoc DOI:
Last Modified:05 Sep 2022 11:03
Deposited On:05 Sep 2022 11:03

Repository Staff Only: item control page