HEC Research Papers Series,
HEC Paris

Abstract: This paper studies the impact of consumer resistance, which is triggered by deviations from a psychological reference point, on optimal pricing and cost communication. Assuming that consumers evaluate purchases not only in the material domain, we show that consumer resistance reduces the pricing power and profit. We also show that consumer resistance provides an incentive to engage in cost communication when consumers underestimate cost. While cheap communication does not affect behavior, persuasive communication may increase sales and profit. Finally, we show that a firm can benefit from engaging in operational transparency by revealing information about features of the production process.

Keywords: Price Fairness; Cost Communication; Operational Transparency

JEL-codes: L11; L21; M31

30 pages, First version: February 8, 2018. Revised: February 16, 2018.

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