Shrinking Goods

Daniel Levy () and Avichai Snir

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Quantity Adjustment; Cognitive Costs of Attention; Information Processing (search for similar items in EconPapers)
JEL-codes: E31 L11 L16 L42 (search for similar items in EconPapers)
Date: 2013-01-22
New Economics Papers: this item is included in nep-com and nep-mac
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https://mpra.ub.uni-muenchen.de/46040/1/MPRA_paper_46040.pdf original version (application/pdf)

Related works:
Working Paper: Shrinking Goods (2013)
Working Paper: Shrinking Goods (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:46040

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