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Article: Optimal Nonlinear Pricing by a Regret-Averse Monopoly
Title | Optimal Nonlinear Pricing by a Regret-Averse Monopoly |
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Authors | |
Keywords | Counterfactual Thinking Regret Theory Stated Choice |
Issue Date | 2020 |
Publisher | John Wiley & Sons Ltd. The Journal's web site is located at http://www3.interscience.wiley.com/cgi-bin/jhome/7976 |
Citation | Managerial and Decision Economics, 2020, v. 41 n. 7, p. 1156-1161 How to Cite? |
Abstract | This paper examines the optimal nonlinear pricing by a regret-averse monopolist who sells a single good to two types of buyers with high and low valuation. The monopolist's preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal alternatives. The magnitude of regret is measured by the difference between the actual profit and the maximum profit that could have been earned should the monopolist have observed each buyer's true taste parameter. We show that regret aversion affects the rent extraction-efficiency tradeoff under asymmetric information. When buyers are more likely to have high (low) valuation, the regret-averse monopolist reduces (enlarges) the downward distortion on the second-best quantity offered to low valuation buyers, thereby resulting in lower (higher) unit prices paid by all buyers and making high valuation buyers better (worse) off. The regret-averse monopolist always earns a lower expected profit. |
Persistent Identifier | http://hdl.handle.net/10722/287125 |
ISSN | 2023 Impact Factor: 2.5 2023 SCImago Journal Rankings: 0.555 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Wong, KP | - |
dc.date.accessioned | 2020-09-22T02:56:08Z | - |
dc.date.available | 2020-09-22T02:56:08Z | - |
dc.date.issued | 2020 | - |
dc.identifier.citation | Managerial and Decision Economics, 2020, v. 41 n. 7, p. 1156-1161 | - |
dc.identifier.issn | 0143-6570 | - |
dc.identifier.uri | http://hdl.handle.net/10722/287125 | - |
dc.description.abstract | This paper examines the optimal nonlinear pricing by a regret-averse monopolist who sells a single good to two types of buyers with high and low valuation. The monopolist's preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal alternatives. The magnitude of regret is measured by the difference between the actual profit and the maximum profit that could have been earned should the monopolist have observed each buyer's true taste parameter. We show that regret aversion affects the rent extraction-efficiency tradeoff under asymmetric information. When buyers are more likely to have high (low) valuation, the regret-averse monopolist reduces (enlarges) the downward distortion on the second-best quantity offered to low valuation buyers, thereby resulting in lower (higher) unit prices paid by all buyers and making high valuation buyers better (worse) off. The regret-averse monopolist always earns a lower expected profit. | - |
dc.language | eng | - |
dc.publisher | John Wiley & Sons Ltd. The Journal's web site is located at http://www3.interscience.wiley.com/cgi-bin/jhome/7976 | - |
dc.relation.ispartof | Managerial and Decision Economics | - |
dc.rights | Accepted (peer-reviewed) Version This is the peer reviewed version of the following article: [Managerial and Decision Economics, 2020, v. 41 n. 7, p. 1156-1161], which has been published in final form at [http://dx.doi.org/10.1002/mde.3162]. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. | - |
dc.subject | Counterfactual Thinking | - |
dc.subject | Regret Theory | - |
dc.subject | Stated Choice | - |
dc.title | Optimal Nonlinear Pricing by a Regret-Averse Monopoly | - |
dc.type | Article | - |
dc.identifier.email | Wong, KP: kpwongc@hkucc.hku.hk | - |
dc.identifier.authority | Wong, KP=rp01112 | - |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.1002/mde.3162 | - |
dc.identifier.scopus | eid_2-s2.0-85082615700 | - |
dc.identifier.hkuros | 314538 | - |
dc.identifier.volume | 41 | - |
dc.identifier.issue | 7 | - |
dc.identifier.spage | 1156 | - |
dc.identifier.epage | 1161 | - |
dc.identifier.isi | WOS:000522966600001 | - |
dc.publisher.place | United Kingdom | - |
dc.identifier.issnl | 0143-6570 | - |