Verlag:
University of Basel, Faculty of Business and Economics, Basel, Switzerland
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...
mehr
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
DS 523
Fernleihe:
keine Fernleihe
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.
