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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- Spiegler, Ran, 2014.
"Bounded Rationality and Industrial Organization,"
Oxford University Press, number 9780199334261, April.
- Spiegler, Ran, 2011. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780195398717, April.
- Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, vol. 88(4), pages 834-847, September.
- Martin J. Osborne & Ariel Rubinstein, 1997. "Games with Procedurally Rational Players," Department of Economics Working Papers 1997-02, McMaster University.
- Osborne, M-J & Rubinstein, A, 1997. "Games with Procedurally Rational Players," Papers 4-97, Tel Aviv.
- Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
- Peter J. Klenow & Benjamin A. Malin, 2010. "Microeconomic Evidence on Price-Setting," NBER Working Papers 15826, National Bureau of Economic Research, Inc.
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
- Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
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