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Consideration Sets and Competitive Marketing

  • Eliaz, Kfir
  • Spiegler, Ran

We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision problem. They apply well-defined preferences to a “consideration set”, which is a function of the marketing devices employed by the firms. We examine the implications of this behavioral model in the context of a competitive market model, particularly on industry profits, vertical product differentiation, the use of marketing devices and consumers’ conversion rates.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7456.

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Date of creation: Sep 2009
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Handle: RePEc:cpr:ceprdp:7456
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  1. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
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  17. Michele Piccione & Ariel Rubinstein, 2010. "Modeling the Economic Interaction of Agents with Diverse Abilities to Recognize Equilibrium Patterns," Levine's Working Paper Archive 506439000000000108, David K. Levine.
  18. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 505-540, May.
  19. Shapiro, Stewart & MacInnis, Deborah J & Heckler, Susan E, 1997. " The Effects of Incidental Ad Exposure on the Formation of Consideration Sets," Journal of Consumer Research, University of Chicago Press, vol. 24(1), pages 94-104, June.
  20. Marianne Bertrand & Dean S. Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," Working Papers 918, Economic Growth Center, Yale University.
  21. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October.
  22. Chakravarti, Amitav & Janiszewski, Chris, 2003. " The Influence of Macro-level Motives on Consideration Set Composition in Novel Purchase Situations," Journal of Consumer Research, University of Chicago Press, vol. 30(2), pages 244-58, September.
  23. Hoyer, Wayne D, 1984. " An Examination of Consumer Decision Making for a Common Repeat Purchase Product," Journal of Consumer Research, University of Chicago Press, vol. 11(3), pages 822-29, December.
  24. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  25. Janiszewski, Chris, 1993. " Preattentive Mere Exposure Effects," Journal of Consumer Research, University of Chicago Press, vol. 20(3), pages 376-92, December.
  26. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
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