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Consumer’s response to price distribution and σ-overload under time allocation

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Álvarez, Francisco and Rey Simo, José Manuel and Sanchis, Raúl G. (2016) Consumer’s response to price distribution and σ-overload under time allocation. Journal of Computational and Applied Mathematics, 291 . pp. 242-256. ISSN 0377-0427

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Official URL: http://dx.doi.org/10.1016/j.cam.2015.03.008



Abstract

It has been recently suggested that both the number of options considered by consumers and their satisfaction when shopping respond to changes in the mean and spread of market prices. A structured analysis of those responses is provided in this paper. A new adverse effect related with consumer’s welfare is presented here, namely a consumer that searches exhaustively among all market options – called maximizer – experiences welfare loss when the dispersion of prices is too high. In fact, her welfare exhibits an inverted-U shape with respect to the standard deviation σ of prices so that an increase in price spread produces more welfare for small values of σ but it has a negative effect for larger values of σ. This new phenomenon is termed σ-overload. It is also shown that a consumer that is content with shopping from a reduced sample of options – a satisficer – avoids σ-overload by adapting her search behavior to the increase in spread. A quantitative assessment of consumer’s behavior and welfare with respect to changes in the mean and dispersion of prices under different scenarios is also provided.


Item Type:Article
Uncontrolled Keywords:Consumer behavior; Time allocation; Choice overload; Price distribution.
Subjects:Social sciences > Sociology > Public Opinion
Social sciences > Economics > Microeconomics
ID Code:55909
Deposited On:21 Jun 2019 08:27
Last Modified:29 Jul 2019 12:20

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