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Preference for Variety

  • Kaiser Karen

    ()

    (Banco de México)

  • Schwabe Rainer

    ()

    (Banco de México)

We consider a decision maker who enjoys choosing from a varied set of alternatives. Building on behavioral evidence, we propose testable axioms which characterize preference for variety and provide a representation theorem. We go on to illustrate the potential effects of preference for variety in a model of retailing. Consumer welfare may be decreasing in the competitiveness of the retailing sector as competition eliminates the scope for retailers to offer variety. Mainstream consumers with a preference for variety and consumers with eccentric tastes enjoy a symbiotic relationship. Competition over mainstream consumers makes retailers offer more exotic goods, while eccentric consumers subsidize their carrying costs.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 12 (2012)
Issue (Month): 1 (January)
Pages: 1-32

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Handle: RePEc:bpj:bejtec:v:12:y:2012:i:1:n:3
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