In various countries, competition laws restrict retailers’ freedom to sell their pro-ducts below cost. A common rationale, shared by policymakers, consumer interestgroups and brand manufacturers alike, is that such “loss leading” of products wouldultimately lead to a race-to-the-bottom in...

When firms' shrouding of charges, as in Gabaix and Laibson (2006), meets with consumers' salient thinking, as in Bordalo et al. (2013), this can have severe welfare implications. The ensuing excessive competition for headline prices tends to inefficiently bias consumers' choice towards...

How should firms optimally choose prices and promotional strategies and how should they position their products when consumers are "relative thinkers"? We provide answers in a model that extends the seminal contributions of Varian (1980) and Narasimhan (1988) and derive both managerial...

Manufacturers frequently resist heavy discounting of their products by retailers, especially when they are used as so-called loss leaders. Since low prices should increase demand and manufacturers could simply refuse to fund deep price promotions, such resistance is puzzling at first sight. We...

Especially in markets with frequent price promotions, where consumers constantly have to form preferences over changing offers, product choice may depend on a relative assessment of prices and qualities. We show how such “relative thinking” profoundly influences firms’ pricing and...