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.
Bibliographical note∗This version: August 2017. I would like to thank the Editor of this journal, two
anonymous referees, Ed Hopkins, Hans Hvide, Kohei Kawamura, Ran Spiegler, the seminar audience at universities of Aberdeen, East Anglia, and Trento, and the participants to the 2015 OLIGO workshop (Madrid) and the 2015 Econometric Society World Congress (Montreal) for their comments. Financial support from the Aberdeen Principal’s Excellence Fund and the Scottish Institute for Research in Economics is gratefully acknowledged. Any error is my own responsibility
- Aspiration Price
- Bounded Rationality
- Price Competition