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Consideration Sets and Competitive Marketing

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  • Eliaz, Kfir
  • Spiegler, Ran

Abstract

We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision problem. They apply well-defined preferences to a "consideration set", which is a function of the marketing devices employed by the firms. We examine the implications of this behavioral model in the context of a competitive market model, particularly on industry profits, vertical product differentiation, the use of marketing devices and consumers' conversion rates.

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File URL: http://mpra.ub.uni-muenchen.de/21434/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21434.

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Date of creation: 05 Jun 2006
Date of revision: 03 Sep 2009
Handle: RePEc:pra:mprapa:21434

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Related research

Keywords: consideration sets; marketing; industrial organization; advertising; default bias; inertia; product display; bounded rationality; limited attention; persuasion;

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References

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  2. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(2), pages 505-540, May.
  3. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
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  11. Eliaz, Kfir & Spiegler, Ran, 2004. "Contracting with Diversely Naive Agents," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4573, C.E.P.R. Discussion Papers.
  12. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, Elsevier, vol. 46(1), pages 145-153, October.
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  14. Marianne Bertrand & Dean Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2010. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(1), pages 263-305, February.
  15. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2008. "Coarse Thinking and Persuasion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 577-619, 05.
  16. Nedungadi, Prakash, 1990. " Recall and Consumer Consideration Sets: Influencing Choice without Altering Brand Evaluations," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 17(3), pages 263-76, December.
  17. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, Econometric Society, vol. 3(4), December.
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  21. Marianne Bertrand & Dean S. Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," Working Papers, Economic Growth Center, Yale University 918, Economic Growth Center, Yale University.
  22. Chakravarti, Amitav & Janiszewski, Chris, 2003. " The Influence of Macro-level Motives on Consideration Set Composition in Novel Purchase Situations," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 30(2), pages 244-58, September.
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