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Price competition with satisficing consumers

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  • Papi, Mauro

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.

Suggested Citation

  • Papi, Mauro, 2018. "Price competition with satisficing consumers," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 252-272.
    • Handle: RePEc:eee:indorg:v:58:y:2018:i:c:p:252-272
    DOI: 10.1016/j.ijindorg.2017.09.001
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    Cited by:

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    More about this item

    Keywords

    Aspiration price; Bounded rationality; Price competition; Satisficing; Search;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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