Economic Theory Seminar

Endogenous Choice of Consideration Sets and Patterns of Competition

Philip Zilke (ZEW, Mannheim)

Jun 02, 2023, 12:15

CEPS, ENS Paris-Saclay, Room 1B26, 91190 Gif-sur-Yvette



In a homogeneous goods market, price differences can be explained by the presence of competitive advantages for some firms due to heterogeneity in the consumers' shopping behaviour -- they take different firms into consideration and buy only from the cheapest within their consideration set. However, if consumers can learn over time about firms pricing behaviour on the whole market and base their decision which firms to consider on that observation, no firm can have a competitive advantage and there should be symmetric pricing. We study a market with informed consumers -- who observe prices -- and uninformed consumers -- who observe only the prices of firms within their consideration set, but can decide which firms to consider after observing their price distributions. We show that differences in marginal production costs can explain asymmetric pricing behaviour in such settings of endogenous shopping behaviour. In equilibrium, all firms charge the same expected price, but use different price distributions. Particularly, in a duopoly market the price distribution of the cost-efficient firm is a mean-preserving spread of the other firm's distribution. Moreover, the cost-efficient firm attracts more uninformed consumers and makes higher expected profits.

More information

Room 1B26
Building North
ENS Paris-Saclay 4 avenue des Sciences
91200 Gif-sur-Yvette