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

• Francisco Álvarez ^[1] ; José-Manuel Rey ^[2] ; Raúl G. Sanchis ^[3]
  1. [1] Universidad Complutense de Madrid

     Universidad Complutense de Madrid

     Madrid, España

     
  2. [2] Harvard University

     Harvard University

     City of Cambridge, Estados Unidos

     
  3. [3] Universidad Carlos III de Madrid

     Universidad Carlos III de Madrid

     Madrid, España

     

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• Localización: Journal of computational and applied mathematics, ISSN 0377-0427, Vol. 291, Nº 1 (1 January 2016), 2016, págs. 242-256
• Idioma: inglés
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• Resumen

  • 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 σσ-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.