Oligopolistic Competition with Choice-Overloaded Consumers

Georgios Gerasimou and Mauro Papi

MPRA Paper from University Library of Munich, Germany

Abstract: A large body of experimental work has suggested the existence of a "choice overload" effect in consumer decision making: Faced with large menus of choice options, decision makers often defer or avoid choice. A suggested reason for the occurrence of this effect is that the agents attempt to avoid the cognitive effort that is associated with choosing from larger menus. Building on this explanation, we propose and analyse a model of duopolistic competition where firms compete in menu design in the presence of a consumer population with heterogeneous preferences and overload menu-size thresholds. The firms' strategic trade-off is between offering a large menu in order to match the preferences of as many consumers as possible, and offering a small menu in order to avoid losing choice-overloaded consumers to their rival. Assuming uniformly distributed preferences, we focus on symmetric pure-strategy equilibria under various assumptions on the overload distribution and product markups. We also propose and analyse a measure of consumer welfare that applies to this environment. Among other things, we provide conditions for "maximum-" and "minimum-variety equilibria" to be possible, whereby both firms either offer the entire set of available products or the same one product, respectively.

Keywords: Choice overload; choice deferral; choice complexity; cognitive costs; oligopolistic competition (search for similar items in EconPapers)
JEL-codes: D01 D03 D11 D18 D21 D60 (search for similar items in EconPapers)
Date: 2015-12-18
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/75085/9/MPRA_paper_75085.pdf revised version (application/pdf)

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