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Price competition with satisficing consumers

Mauro Papi

International Journal of Industrial Organization, 2018, vol. 58, issue C, 252-272

Abstract: The ‘satisficing’ heuristic by Simon (1955) has recently attracted attention both theoretically and experimentally. In this paper I study a price-competition model in which the consumer is satisficing and firms can influence his aspiration price via marketing. Unlike existing models, whether a price comparison is made depends on both pricing and marketing strategies. I fully characterize the unique symmetric equilibrium by investigating the implications of satisficing on various aspects of market competition. The proposed model can help explain well-documented economic phenomena, such as the positive correlation between marketing and prices observed in some markets.

Keywords: Aspiration price; Bounded rationality; Price competition; Satisficing; Search (search for similar items in EconPapers)
JEL-codes: C79 D03 D43 (search for similar items in EconPapers)
Date: 2018
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