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Pricing behavior of firms when consumers have an Imperfect Recall

Author

Listed:
  • Hasan, Syed Akif
  • Subhani, Muhammad Imtiaz
  • Osman, Ms. Amber
  • Mehar, Ayub

Abstract

Operating in markets which include the characteristics of both the perfect and imperfect competitions has never been so easy for a firm, while setting an acceptable price. Various firms show various pricing behavior to generate and maximize revenues. This paper is an attempt to encompass pricing behaviors of firms when consumers have imperfect recall for the past prices of the products, while giving a thought to ponder that which of the behaviors has an optimal rationale when a firm sets market price for a commodity. The findings concludes that firms set prices as similar as monopolist when the consumers of their products have imperfect recall for price they offered already in yore.

Suggested Citation

  • Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Ms. Amber & Mehar, Ayub, 2012. "Pricing behavior of firms when consumers have an Imperfect Recall," MPRA Paper 35682, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35682
    as

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    File URL: https://mpra.ub.uni-muenchen.de/35682/1/MPRA_paper_35682.pdf
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    References listed on IDEAS

    as
    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. James Dow, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 1-14.
    3. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
    4. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
    5. Hehenkamp, Burkhard, 2002. "Sluggish Consumers: An Evolutionary Solution to the Bertrand Paradox," Games and Economic Behavior, Elsevier, vol. 40(1), pages 44-76, July.
    6. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    7. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    8. David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
    9. Xavier Gabaix & David Laibson & Hongyi Li, 2005. "Extreme Value Theory and the Effects of Competition on Profits," Levine's Bibliography 784828000000000656, UCLA Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Imperfect recall; pricing behavior; monopolist; hotelling tradeoff;

    JEL classification:

    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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