Title: Transactional utility - Economics Help
Headings: Transactional utility
Transactional utility
Transactional utility and Prospect Theory
Examples of Transactional utility
Another question – Buying expensive products
Implications of transactional utility
Personal examples of transactional utility
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Content: One reason is transactional utility. The radio is nearly 30% discount – giving a large perceived transactional utility to buy the cheaper radio. The TV is only 1.5% cheaper so the transactional utility of saving $10 out of $640 feels much less. Another question – Buying expensive products
Suppose you are thirsty at the airport, and someone offers you a bottle of water for $6. The marginal utility of the water is greater than the $6. However, despite being really thirsty, this transaction creates significant negative transactional utility because you know $6 for a bottle of water is much higher than your usual reference price for water. Implications of transactional utility
We may not buy a product, even if value is greater than market price (we dislike feeling of being ripped off)
A reason why football clubs and sports stars may sell tickets below market price. Market clearing price to see Manchester United may be £200, but the perceived fair market price is £80. For a monopoly to charge higher prices than usual, they should try to differentiate the product from our usual reference price. For example, cinemas sell popcorn at inflated prices (above market price).