Bargaining with incomplete information under loss-aversion and reference points for the seller

This paper examines the bargaining situation with a seller who is assumed loss-averse and has an exogenously determined reference point with buyers who are assumed to maximize their individual payoffs. By introducing reference points the seller has certain expectations about the value of the object being sold. These expectations in turn are responsible for the pricing scheme the seller introduces. Since the seller is also assumed loss-averse, the pricing scheme of the seller also changes as soon as the realized gains fall below the reference point. The consumer who purchases the object will always always be worse off in this new situation, whereas the seller with loss aversion and a relatively low reference point might see its profits increasing.