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Buridanic Competition

Author

Listed:
  • Bachi, Benjamin
  • Spiegler, Ran

Abstract

We analyze a model in which two profit-maximizing firms compete in two-attribute products over agents who follow a non-compensatory choice procedure that responds purely to ordinal quality rankings: sticking to a default option when no market alternative dominates another, and focusing on a random attribute when choosing by default is impossible. Our equilibrium analysis highlights the effect of such trade-off avoidance on various aspects of the market outcome: total quality of the offered products, amount of obfuscation, prevalence of "hard choices", as well as market participation and consumer switching rates. We discuss the potential implications of this analysis for "default architecture".

Suggested Citation

  • Bachi, Benjamin & Spiegler, Ran, 2014. "Buridanic Competition," Foerder Institute for Economic Research Working Papers 275793, Tel-Aviv University > Foerder Institute for Economic Research.
  • Handle: RePEc:ags:isfiwp:275793
    DOI: 10.22004/ag.econ.275793
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    File URL: http://ageconsearch.umn.edu/record/275793/files/1-2014.pdf
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    References listed on IDEAS

    as
    1. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    2. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
    3. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    4. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 97-135.
    5. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
    6. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    7. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
    8. Ok, Efe A., 2002. "Utility Representation of an Incomplete Preference Relation," Journal of Economic Theory, Elsevier, vol. 104(2), pages 429-449, June.
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    10. Szentes, Balazs & Rosenthal, Robert W., 2003. "Beyond chopsticks: Symmetric equilibria in majority auction games," Games and Economic Behavior, Elsevier, vol. 45(2), pages 278-295, November.
    11. Ran Spiegler, 2015. "On the Equilibrium Effects of Nudging," The Journal of Legal Studies, University of Chicago Press, vol. 44(2), pages 389-416.
    12. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
    13. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Asset Prices," American Economic Review, American Economic Association, vol. 103(3), pages 623-628, May.
    14. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C., 2013. "Simplification and saving," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 130-145.
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    17. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1639-1674.
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    23. 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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    Cited by:

    1. Ronayne, David & Brown, Gordon D.A., 2016. "Multi-Attribute Decision By Sampling : An Account Of The Attraction, Compromise And Similarity Effects," Economic Research Papers 269322, University of Warwick - Department of Economics.
    2. Benjamin Bachi, 2016. "Competition with price similarities," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 277-290, October.
    3. Ran Spiegler, 2015. "On the Equilibrium Effects of Nudging," The Journal of Legal Studies, University of Chicago Press, vol. 44(2), pages 389-416.
    4. Andreas Hefti & Shuo Liu, 2016. "Targeted information and limited attention," ECON - Working Papers 230, Department of Economics - University of Zurich, revised Jun 2018.
    5. repec:eee:eecrev:v:101:y:2018:i:c:p:330-353 is not listed on IDEAS

    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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