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Shrinking Goods

  • Daniel Levy

    ()

    (Emory University, USA; Bar-Ilan University, Israel; RCEA, Italy)

  • Avichai Snir

    ()

    (Department of Banking and Finance, Netanya Academic College, Israel)

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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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 20_13.

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Date of creation: Apr 2013
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Handle: RePEc:rim:rimwps:20_13
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  17. Dennis W. Carlton, 1991. "The Theory of Allocation and Its Implications for Marketing and Industrial Structure," NBER Working Papers 3786, National Bureau of Economic Research, Inc.
  18. Marc Vanhuele & X. Drèze, 2002. "Measuring the Price Knowledge Shoppers Bring to the Store," Post-Print hal-00457563, HAL.
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