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.
|Number of pages||21|
|Journal||International Journal of Industrial Organization|
|Early online date||15 Sep 2017|
|Publication status||Published - May 2018|
- Aspiration Price
- Bounded Rationality
- Price Competition