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Equilibrium with Consumer Adjustment to Choice

Author

Listed:
  • Matthew G. Nagler

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

Abstract

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.

Suggested Citation

  • Matthew G. Nagler, 2016. "Equilibrium with Consumer Adjustment to Choice," Working Papers 10, City University of New York Graduate Center, Ph.D. Program in Economics.
  • Handle: RePEc:cgc:wpaper:010
    as

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    File URL: http://wfs.gc.cuny.edu/Economics/RePEc/cgc/wpaper/CUNYGC-WP010.pdf
    File Function: First version, March 2016
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    decision-making; imperfect competition; location models; endogenous tastes;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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