Price competition with satisficing consumers

Mauro Papi

doi:10.1016/j.ijindorg.2017.09.001

Price competition with satisficing consumers

Mauro Papi

Economics

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

1 Downloads (Pure)

Abstract

The ‘satisficing’ heuristic by Simon (1955) has recently attracted attention both theoretically and experimentally. In this paper I study a price-competition model in which the consumer is satisficing and firms can influence his aspiration price via marketing. Unlike existing models, whether a price comparison is made depends on both pricing and marketing strategies. I fully characterize the unique symmetric equilibrium by investigating the implications of satisficing on various aspects of market competition. The proposed model can help explain well-documented economic phenomena, such as the positive correlation between marketing and prices observed in some markets.

Original language	English
Pages (from-to)	252-272
Number of pages	21
Journal	International Journal of Industrial Organization
Volume	58
Early online date	15 Sep 2017
DOIs	https://doi.org/10.1016/j.ijindorg.2017.09.001
Publication status	Published - May 2018

Keywords

Aspiration Price
Bounded Rationality
Price Competition
Satisficing
Search

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10.1016/j.ijindorg.2017.09.001Licence: Unspecified

Accepted Manuscript
© 2017. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 492 KBLicence: CC BY-NC-ND

Mauro Papi
- Business School, Economics - Senior Lecturer
Person: Academic

Cite this

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title = "Price competition with satisficing consumers",

abstract = "The {\textquoteleft}satisficing{\textquoteright} heuristic by Simon (1955) has recently attracted attention both theoretically and experimentally. In this paper I study a price-competition model in which the consumer is satisficing and firms can influence his aspiration price via marketing. Unlike existing models, whether a price comparison is made depends on both pricing and marketing strategies. I fully characterize the unique symmetric equilibrium by investigating the implications of satisficing on various aspects of market competition. The proposed model can help explain well-documented economic phenomena, such as the positive correlation between marketing and prices observed in some markets.",

keywords = "Aspiration Price, Bounded Rationality, Price Competition, Satisficing, Search",

author = "Mauro Papi",

note = "∗This version: August 2017. I would like to thank the Editor of this journal, two anonymous referees, Ed Hopkins, Hans Hvide, Kohei Kawamura, Ran Spiegler, the seminar audience at universities of Aberdeen, East Anglia, and Trento, and the participants to the 2015 OLIGO workshop (Madrid) and the 2015 Econometric Society World Congress (Montreal) for their comments. Financial support from the Aberdeen Principal{\textquoteright}s Excellence Fund and the Scottish Institute for Research in Economics is gratefully acknowledged. Any error is my own responsibility",

year = "2018",

month = may,

doi = "10.1016/j.ijindorg.2017.09.001",

language = "English",

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pages = "252--272",

journal = "International Journal of Industrial Organization",

issn = "0167-7187",

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N2 - The ‘satisficing’ heuristic by Simon (1955) has recently attracted attention both theoretically and experimentally. In this paper I study a price-competition model in which the consumer is satisficing and firms can influence his aspiration price via marketing. Unlike existing models, whether a price comparison is made depends on both pricing and marketing strategies. I fully characterize the unique symmetric equilibrium by investigating the implications of satisficing on various aspects of market competition. The proposed model can help explain well-documented economic phenomena, such as the positive correlation between marketing and prices observed in some markets.

AB - The ‘satisficing’ heuristic by Simon (1955) has recently attracted attention both theoretically and experimentally. In this paper I study a price-competition model in which the consumer is satisficing and firms can influence his aspiration price via marketing. Unlike existing models, whether a price comparison is made depends on both pricing and marketing strategies. I fully characterize the unique symmetric equilibrium by investigating the implications of satisficing on various aspects of market competition. The proposed model can help explain well-documented economic phenomena, such as the positive correlation between marketing and prices observed in some markets.

KW - Aspiration Price

KW - Bounded Rationality

KW - Price Competition

KW - Satisficing

KW - Search

U2 - 10.1016/j.ijindorg.2017.09.001

DO - 10.1016/j.ijindorg.2017.09.001

M3 - Article

VL - 58

SP - 252

EP - 272

JO - International Journal of Industrial Organization

JF - International Journal of Industrial Organization

SN - 0167-7187

ER -

Price competition with satisficing consumers

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Mauro Papi

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