Price Discrimination with Loss Averse and Horizontally Differentiated Consumers

Abstract

This paper considers a monopolist seller facing horizontally differentiated consumers, whose preferences are reference-dependent and loss averse in the frame of Kőszegi and Rabin (2006). Our results on optimal menu suggest that consumer loss aversion does not necessarily limit the benefits of screening under the horizontal demand structure, in contrast to the findings of Hahn, Kim, Kim and Lee (2018) and Herweg and Mierendorff (2013) who consider the case of vertically differentiated preferences.