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Adaptive learning models of consumer behavior

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  • Hopkins, Ed

Abstract

In a model of dynamic duopoly, optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products. A contrast is made between belief-based and reinforcement learning. Under reinforcement learning, consumers can become locked into the habit of purchasing inferior goods. Such lock-in permits the existence of multiple history-dependent asymmetric steady states in which one firm dominates. In contrast, belief-based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 64 (2007)
Issue (Month): 3-4 ()
Pages: 348-368

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Handle: RePEc:eee:jeborg:v:64:y:2007:i:3-4:p:348-368

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Web page: http://www.elsevier.com/locate/jebo

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Keywords: Learning Consumer behavior Dynamic pricing Behavioral economics Reinforcement learning Market structure;

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References

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Citations

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Cited by:
  1. Grimm, Veronika & Mengel, Friederike, 2009. "An Experiment on Learning in a Multiple Games Environment," Research Memorandum 007, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Friederike Mengel, 2007. "Learning Across Games," Working Papers. Serie AD 2007-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Carlos Alós-Ferrer & Georg Kirchsteiger & Markus Walzl, 2007. "On the Evolution of Market Institutions: The Platform Design Paradox," CESifo Working Paper Series 2012, CESifo Group Munich.
  4. Oyarzun, Carlos & Sarin, Rajiv, 2013. "Learning and risk aversion," Journal of Economic Theory, Elsevier, vol. 148(1), pages 196-225.
  5. Liangjie Zhao & Wenqi Duan, 2014. "Simulating the Evolution of Market Shares: The Effects of Customer Learning and Local Network Externalities," Computational Economics, Society for Computational Economics, vol. 43(1), pages 53-70, January.
  6. Carlos Oyarzun & Rajiv Sarin, 2012. "Learning and Risk Aversion," Levine's Working Paper Archive 786969000000000572, David K. Levine.

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