Equilibrium with Consumer Adjustment to Choice
Matthew Nagler ()
No 10, Working Papers from City University of New York Graduate Center, Ph.D. Program in Economics
I present a spatial model of differentiated product markets in which consumers with heterogeneous tastes rationally improve their attitude towards the product they choose. Adjustment raises prices if adjustment facility is greater for consumers who initially prefer a product more (e.g., preferences and corresponding adjustments exhibit the halo effect). It lowers prices if instead easier adjustment for consumers with weaker initial preferences causes attitudinal regression to the mean. The theory explains higher prices in markets to the poor and less educated and so motivates re-examination of previously proposed solutions to the poor performance of those markets.
Keywords: decision-making; imperfect competition; location models; endogenous tastes (search for similar items in EconPapers)
JEL-codes: D03 D11 L10 (search for similar items in EconPapers)
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