Management Science and Financial Engineering

The Korean Operations Research and Management Science Society (한국경영과학회)
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The Effect of Consumers' Loss Aversion on Pioneering Advantage

  • Won, Eu-Gene J.S. (Marketing, Department of Business Administration, Dongduk Women's University)
  • Received : 2010.05.03
  • Accepted : 2011.01.12
  • Published : 2011.05.31
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Abstract

The present study provides a theoretical investigation on pioneering advantage based on reference dependence and loss aversion effect under prospect theory (Kahneman and Tversky, 1979). Behavioral explanations for pioneering advantage are provided from two different perspectives: one based on the prototypicality and the other on the utility uncertainty of the option. A pioneer brand creates the product category and makes a strong impression in customers' mind, and thus becomes the most representative or prototypical option of the category. In addition, the pioneer brand becomes the first option to be experienced by the majority of consumers in the product category, thus has the lowest level of utility uncertainty compared with the late movers. This study integrates the previous accounts for pioneering advantage by showing that consumers have higher preferences for the most prototypical and the least uncertain option based on loss aversion and reference dependence effect. This study suggests that firms should carefully analyze the consumers' loss aversion and perceived uncertainty and prototypicality of their products in order to develop effective market entry strategies.

Keywords

References

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