SELLING IN ADVANCE TO LOSS AVERSE CONSUMERS

Abstract

AbstractThis article examines the influence of information on market performance in an advance purchase setting. Information reduces the risk that an advance purchase results in a mismatch between consumer preferences and product characteristics. However, information may also raise the number of advance purchases by increasing firms' incentive to offer advance purchase discounts. Accounting for consumers' aversion toward losses/risks turns out to be crucial as it changes our assessment of policies aiming to improve consumers' information: Under monopoly, information can be detrimental both for efficiency and consumer surplus, whereas under competition, information is doubly beneficial because it mitigates intertemporal business stealing.