Equilibrium with Consumer Adjustment to Choice
I present a spatial model of differentiated product markets in which consumers with heterogeneous tastes rationally improve their attitude towards the product they choose. Adjustment raises prices if adjustment facility is greater for consumers who initially prefer a product more (e.g., preferences and corresponding adjustments exhibit the halo effect). It lowers prices if instead easier adjustment for consumers with weaker initial preferences causes attitudinal regression to the mean. The theory explains higher prices in markets to the poor and less educated and so motivates re-examination of previously proposed solutions to the poor performance of those markets.
|Date of creation:||20 Mar 2016|
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- Bloch, Francis & Manceau, Delphine, 1999. "Persuasive advertising in Hotelling's model of product differentiation," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 557-574, May.
- Richard H. Thaler, 2008.
"Mental Accounting and Consumer Choice,"
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- Richard Thaler, 1985. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 4(3), pages 199-214.
- Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
- Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
- Debabrata Talukdar, 2008. "Cost of Being Poor: Retail Price and Consumer Price Search Differences across Inner-City and Suburban Neighborhoods," Journal of Consumer Research, Oxford University Press, vol. 35(3), pages 457-471, 07.
- Roland Benabou and Jean Tirole, 2004. "Willpower and Personal Rules," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 848-886, August.
- Benabou, R. & Tirole, J., 2001. "Willpower and Personal Rules," Papers 216, Princeton, Woodrow Wilson School - Public and International Affairs.
- Bénabou, Roland & Tirole, Jean, 2002. "Willpower and Personal Rules," CEPR Discussion Papers 3143, C.E.P.R. Discussion Papers.
- Barbara J. Phillips & Edward F. McQuarrie, 2010. "Narrative and Persuasion in Fashion Advertising," Journal of Consumer Research, Oxford University Press, vol. 37(3), pages 368-392, October.
- Christian Broda & Ephraim Leibtag & David E. Weinstein, 2009. "The Role of Prices in Measuring the Poor's Living Standards," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 77-97, Spring. Full references (including those not matched with items on IDEAS)
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