Bounded Rationality and Industrial Organization

Research output: Book/ReportBookpeer-review

Abstract

This book synthesizes recent developments in the theory of Industrial Organization, incorporating aspects of consumer psychology that are absent from the standard model of rational choice. The book analyzes three classes of market models in which profit-maximizing firms interact with boundedly rational consumers, each capturing a different aspect of bounded consumer rationality: dynamically inconsistent preferences and biased beliefs regarding future preferences, limited ability to understand price complexity, and reference-dependent choice. These models address questions such as: Can we explain observed pricing, marketing and product differentiation strategies as equilibrium responses consumers' bounded rationality? Do market forces protect boundedly rational consumers from being exploited by firms? What is the role of market regulation and consumer protection policies in this regard? How do firms discriminate between consumers according to differences in their rationality? The book is meant to serve as a textbook for graduate courses in microeconomic theory, industrial organization or behavioral economics.

Original languageEnglish
Place of PublicationOxford ; New York
PublisherOxford University Press
Number of pages240
ISBN (Electronic)9780199896790
ISBN (Print)9780195398717, 0199334269
DOIs
StatePublished - 22 Sep 2011

Keywords

  • Behavioral economics
  • Behavioral industrial organization
  • Biased beliefs
  • Bounded rationality
  • Competition
  • Consumer protection
  • Consumer psychology
  • Dynamically inconsistent preferences
  • Industrial organization
  • Monopoly
  • Price complexity
  • Reference-dependent choice
  • Regulation

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