We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect … theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility … an otherwise standard dynamic neoclassical model of monopolistic competition. The resulting theory of price adjustment is …

This paper provides an alternative theory of price adjustment resting on consumer loss aversion in the price dimension …. In line with prospect theory the perceived losses from price increases are weighted stronger in the consumer s utility …, depending on the size of the shock the prices adjust more or less pronounced than in the standard monopoly model and that prices …