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Equilibrium with Consumer Adjustment to Choice

Listed author(s):
  • Matthew G. Nagler

    ()

    (Ph.D. Program in Economics, Graduate Center, and Department of Economics and Business, City College of New York)

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.

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File URL: http://wfs.gc.cuny.edu/Economics/RePEc/cgc/wpaper/CUNYGC-WP010.pdf
File Function: First version, March 2016
Download Restriction: no

Paper provided by City University of New York Graduate Center, Ph.D. Program in Economics in its series Working Papers with number 10.

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Length: 44
Date of creation: 20 Mar 2016
Handle: RePEc:cgc:wpaper:010
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  1. 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.
  2. 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.
  3. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  4. 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.
  5. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
  6. 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.
  7. 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.
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