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Shrinking Goods

  • Levy, Daniel
  • Snir, Avichai

If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices don't change. We study a situation where producers adjust the quantity per package rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information.

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File URL: http://mpra.ub.uni-muenchen.de/46040/1/MPRA_paper_46040.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46040.

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Date of creation: 22 Jan 2013
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Handle: RePEc:pra:mprapa:46040
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  7. Levy, Daniel & Lee, Dongwon & Chen, Haipeng (Allan) & Kauffman, Robert & Bergen, Mark, 2007. "Price Points and Price Rigidity," MPRA Paper 1472, University Library of Munich, Germany.
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  17. Raajpoot, Nusser A. & Sharma, Arun & Chebat, Jean-Charles, 2008. "The role of gender and work status in shopping center patronage," Journal of Business Research, Elsevier, vol. 61(8), pages 825-833, August.
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