IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0146389.html
   My bibliography  Save this article

Perfect Information vs Random Investigation: Safety Guidelines for a Consumer in the Jungle of Product Differentiation

Author

Listed:
  • Alessio Emanuele Biondo
  • Alfio Giarlotta
  • Alessandro Pluchino
  • Andrea Rapisarda

Abstract

We present a graph-theoretic model of consumer choice, where final decisions are shown to be influenced by information and knowledge, in the form of individual awareness, discriminating ability, and perception of market structure. Building upon the distance-based Hotelling’s differentiation idea, we describe the behavioral experience of several prototypes of consumers, who walk a hypothetical cognitive path in an attempt to maximize their satisfaction. Our simulations show that even consumers endowed with a small amount of information and knowledge may reach a very high level of utility. On the other hand, complete ignorance negatively affects the whole consumption process. In addition, rather unexpectedly, a random walk on the graph reveals to be a winning strategy, below a minimal threshold of information and knowledge.

Suggested Citation

  • Alessio Emanuele Biondo & Alfio Giarlotta & Alessandro Pluchino & Andrea Rapisarda, 2016. "Perfect Information vs Random Investigation: Safety Guidelines for a Consumer in the Jungle of Product Differentiation," PLOS ONE, Public Library of Science, vol. 11(1), pages 1-26, January.
    • Handle: RePEc:plo:pone00:0146389
    DOI: 10.1371/journal.pone.0146389
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0146389
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0146389&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0146389?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. repec:cup:judgdm:v:5:y:2010:i:5:p:326-338 is not listed on IDEAS
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    5. Itzhak Gilboa & David Schmeidler, 2001. "A cognitive model of individual well-being," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(2), pages 269-288.
    6. Pluchino, Alessandro & Rapisarda, Andrea & Garofalo, Cesare, 2011. "Efficient promotion strategies in hierarchical organizations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(20), pages 3496-3511.
    7. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    8. Barton L. Lipman, 1995. "Information Processing and Bounded Rationality: A Survey," Canadian Journal of Economics, Canadian Economics Association, vol. 28(1), pages 42-67, February.
    9. Keeney,Ralph L. & Raiffa,Howard, 1993. "Decisions with Multiple Objectives," Cambridge Books, Cambridge University Press, number 9780521438834.
    10. Alessio Emanuele Biondo & Alessandro Pluchino & Andrea Rapisarda, 2012. "The beneficial role of random strategies in social and financial systems," Papers 1209.5881, arXiv.org, revised Jan 2013.
    11. Scheibehenne, Benjamin & von Helversen, Bettina & Rieskamp, Jörg, 2015. "Different strategies for evaluating consumer products: Attribute- and exemplar-based approaches compared," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 39-50.
    12. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    13. Cremer, Helmuth & Thisse, Jacques-Francois, 1991. "Location Models of Horizontal Differentiation: A Special Case of Vertical Differentiation Models," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 383-390, June.
    14. Pluchino, Alessandro & Rapisarda, Andrea & Garofalo, Cesare, 2010. "The Peter principle revisited: A computational study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(3), pages 467-472.
    15. Fuad Aleskerov & Denis Bouyssou & Bernard Monjardet, 2007. "Utility Maximization, Choice and Preference," Springer Books, Springer, edition 0, number 978-3-540-34183-3, November.
    16. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    17. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    18. Swait, Joffre & Adamowicz, Wiktor, 2001. "Choice Environment, Market Complexity, and Consumer Behavior: A Theoretical and Empirical Approach for Incorporating Decision Complexity into Models of Consumer Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 86(2), pages 141-167, November.
    19. Lucie L. Sirieix & Marion M. Delanchy & Hervé H. Remaud & Lydia L. Zepeda & Patricia P. Gurviez, 2013. "Consumers' perceptions of individual and combined sustainable food labels: a UK pilot investigation," Post-Print hal-01000413, HAL.
    20. Andrea Zaccaria & Matthieu Cristelli & Andrea Tacchella & Luciano Pietronero, 2014. "How the Taxonomy of Products Drives the Economic Development of Countries," PLOS ONE, Public Library of Science, vol. 9(12), pages 1-17, December.
    21. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    22. Alessio Emanuele Biondo & Alessandro Pluchino & Andrea Rapisarda & Dirk Helbing, 2013. "Are Random Trading Strategies More Successful than Technical Ones?," PLOS ONE, Public Library of Science, vol. 8(7), pages 1-13, July.
    23. Tanya L. Chartrand & Joel Huber & Baba Shiv & Robin J. Tanner, 2008. "Nonconscious Goals and Consumer Choice," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 35(2), pages 189-201, April.
    24. Bettman, James R & Luce, Mary Frances & Payne, John W, 1998. "Constructive Consumer Choice Processes," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(3), pages 187-217, December.
    25. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    26. de Palma, Andre & Myers, Gordon M & Papageorgiou, Yorgos Y, 1994. "Rational Choice under an Imperfect Ability to Choose," American Economic Review, American Economic Association, vol. 84(3), pages 419-440, June.
    27. Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
    28. Alessio Emanuele Biondo & Alessandro Pluchino & Andrea Rapisarda, 2014. "Micro and Macro Benefits of Random Investments in Financial Markets," Papers 1405.5805, arXiv.org.
    29. A. E. Biondo & A. Pluchino & A. Rapisarda & D. Helbing, 2013. "Are random trading strategies more successful than technical ones?," Papers 1303.4351, arXiv.org, revised Jul 2013.
    30. Alessio Emanuele Biondo & Alessandro Pluchino & Andrea Rapisarda & Dirk Helbing, 2013. "Reducing Financial Avalanches By Random Investments," Papers 1309.3639, arXiv.org, revised Nov 2013.
    31. Araña, Jorge E. & León, Carmelo J., 2009. "Understanding the use of non-compensatory decision rules in discrete choice experiments: The role of emotions," Ecological Economics, Elsevier, vol. 68(8-9), pages 2316-2326, June.
    32. Pluchino, Alessandro & Garofalo, Cesare & Rapisarda, Andrea & Spagano, Salvatore & Caserta, Maurizio, 2011. "Accidental politicians: How randomly selected legislators can improve parliament efficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(21), pages 3944-3954.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Biondo, A.E. & Pluchino, A. & Rapisarda, A., 2018. "Modeling surveys effects in political competitions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 714-726.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alessandro Pluchino & Alessio Emanuele Biondo & Andrea Rapisarda, 2018. "Talent Versus Luck: The Role Of Randomness In Success And Failure," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 21(03n04), pages 1-31, May.
    2. Caserta, Maurizio & Pluchino, Alessandro & Rapisarda, Andrea & Spagano, Salvatore, 2021. "Why lot? How sortition could help representative democracy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 565(C).
    3. Biondo, A.E. & Pluchino, A. & Rapisarda, A., 2018. "Modeling surveys effects in political competitions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 714-726.
    4. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    5. Tauman, Yair & Urbano, Amparo & Watanabe, Junichi, 1997. "A Model of Multiproduct Price Competition," Journal of Economic Theory, Elsevier, vol. 77(2), pages 377-401, December.
    6. L. S. Di Mauro & A. Pluchino & A. E. Biondo, 2018. "A Game of Tax Evasion: evidences from an agent-based model," Papers 1809.08146, arXiv.org.
    7. Alessandro Pluchino & Giulio Burgio & Andrea Rapisarda & Alessio Emanuele Biondo & Alfredo Pulvirenti & Alfredo Ferro & Toni Giorgino, 2019. "Exploring the role of interdisciplinarity in physics: Success, talent and luck," PLOS ONE, Public Library of Science, vol. 14(6), pages 1-15, June.
    8. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    9. Dieter Pennerstorfer & Nora Schindler & Christoph Weiss & Biliana Yontcheva, 2020. "Income Inequality and Product Variety: Empirical Evidence," Economics working papers 2020-17, Department of Economics, Johannes Kepler University Linz, Austria.
    10. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    11. Rosenkranz, Stephanie, 2003. "Simultaneous choice of process and product innovation when consumers have a preference for product variety," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 183-201, February.
    12. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    13. Constantatos, Christos & Perrakis, Stylianos, 1995. "Différenciation verticale et structure du marché," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(1), pages 71-98, mars.
    14. Auer, Raphael A. & Sauré, Philip, 2017. "Dynamic entry in vertically differentiated markets," Journal of Economic Theory, Elsevier, vol. 167(C), pages 177-205.
    15. Carlo Ciccarelli & Gianni De Fraja & Silvia Tiezzi, 2021. "How hard is it to maximize profit? Evidence from a 19th-century Italian state monopoly [Estimation and hypothesis testing in dynamic singular equation systems]," Oxford Economic Papers, Oxford University Press, vol. 73(2), pages 879-902.
    16. Ralph Siebert, 2003. "The Introduction of New Product Qualities by Incumbent Firms: Market Proliferation versus Cannibalization," CIG Working Papers SP II 2003-11, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    17. Tarek Selim, 2004. "Endogenous quality choice: price and quantity competition," Economics Bulletin, AccessEcon, vol. 28(3), pages 1.
    18. Schmidt, Robert C., 2009. "Welfare in differentiated oligopolies with more than two firms," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 501-507, July.
    19. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    20. Alejandro Ramírez Vigoya, 2011. "Un equilibrio Bayesiano de Nash: competencia a la Cournot bajo información asimétrica y productos diferenciados," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0146389. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.