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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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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