Reference Dependent Preferences: Characterizing Demand and Optimal Pricing Rule

This thesis studies consumer demand and pricing in a setting with reference-dependent preferences and loss aversion. We investigate the properties of individual demand and demand aggregation. We then study how monopolists set prices in such settings, and how this pricing behaviour depends on the specic variables related to reference dependence and loss-aversion. We also study optimal pricing from a regulator's perspective. We nd that standard methods of demand aggregation are not necessarily feasible in this setting. Furthermore we see that the zero-sum result related to increased price mark-ups that we nd in standard models do not necessarily hold when we consider loss-aversion and reference dependence. As a result, both consumers and producers can be better o in such cases. Lastly, we nd that a regulator can always make consumers better o by setting prices appropriately in response to shifts in gain-loss valuation related variables. Our results oer a promising starting point for further research within behavioural industrial organization, particularly if our ndings are integrated with other recent advances within the eld.