Price competition with satisficing consumers

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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 languageEnglish
Pages (from-to)252-272
Number of pages21
JournalInternational Journal of Industrial Organization
Volume58
Early online date15 Sep 2017
DOIs
Publication statusPublished - May 2018

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Keywords

  • Aspiration Price
  • Bounded Rationality
  • Price Competition
  • Satisficing
  • Search

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