Consumer bounded rationality and rigidity/flexibility retail price patterns
I revisit the model of market competition with boundedly rational consumers due to Spiegler (2006), in which firms compete in price distributions and consumers use a naive sampling procedure to evaluate them. I assume that firms can assign weight to arbitrarily low prices, and consumers have a non-trivial ex ante outside option. In symmetric Nash equilibrium, firms charge a high “regular price” with positive probability, and in addition randomize continuously over an interval of “sale” prices that are bounded away from the regular price. Sales become less frequent but more drastic as the number of competitors increases and as the consumer’s outside option becomes more attractive.
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Osborne, Martin J & Rubinstein, Ariel, 1998.
"Games with Procedurally Rational Players,"
American Economic Review,
American Economic Association, vol. 88(4), pages 834-47, September.
- Spiegler, Ran, 2014.
"Bounded Rationality and Industrial Organization,"
Oxford University Press, number 9780199334261, March.
- Peter J. Klenow & Benjamin A. Malin, 2010.
"Microeconomic Evidence on Price-Setting,"
NBER Working Papers
15826, National Bureau of Economic Research, Inc.
- Ran Spiegler, 2005.
"Competition over Agents with Boundedly Rational Expectations,"
122247000000000535, UCLA Department of Economics.
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
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