Consumer bounded rationality and rigidity/flexibility retail price patterns

Ran Spiegler*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

I revisit the model of market competition with boundedly rational consumers due to Spiegler (2006), in which firms compete in price distributions and consumers use a naive sampling procedure to evaluate them. I assume that firms can assign weight to arbitrarily low prices, and consumers have a non-trivial ex ante outside option. In symmetric Nash equilibrium, firms charge a high "regular price"with positive probability, and in addition randomize continuously over an interval of "sale"prices that are bounded away from the regular price. Sales become less frequent but more drastic as the number of competitors increases and as the consumer's outside option becomes more attractive.

Original languageEnglish
Pages (from-to)335-338
Number of pages4
JournalEconomics Letters
Volume116
Issue number3
DOIs
StatePublished - Sep 2012

Funding

FundersFunder number
Seventh Framework Programme230251

    Keywords

    • Bounded rationality
    • Industrial organization
    • Price rigidity
    • Regular prices
    • Sales
    • Sampling

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