Seller's dilemma due to social interactions between customers
AbstractIn this paper, we consider a discrete choice model where heterogeneous agents are subject to mutual influences. We explore some consequences on the market's behaviour, in the simplest case of a uniform willingness to pay distribution. We exhibit a first-order phase transition in the profit optimization by the monopolist: if the social influence is strong enough, there is a regime where, if the mean willingness to pay increases, or if the production costs decrease, the optimal solution for the monopolist jumps from a solution with a high price and a small number of buyers, to a solution with a low price and a large number of buyers. Depending on the path of prices adjustments by the monopolist, simulations show hysteretic effects on the fraction of buyers.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 356 (2005)
Issue (Month): 2 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Ising model; Social interactions; Monopoly market; Econophysics;
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- Schütz, Gunter M. & de Almeida Prado, Fernando Pigeard & Harris, Rosemary J. & Belitsky, Vladimir, 2009. "Short-time behaviour of demand and price viewed through an exactly solvable model for heterogeneous interacting market agents," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(19), pages 4126-4144.
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