Arbeitspapier
Product Pricing when Demand Follows a Rule of Thumb
We analyze the strategic behavior of firms when demand is determined by a rule of thumb behavior of consumers. We assume consumer dynamics where individual consumers follow simple behavioral decision rules governed by imitation and habit as suggested in consumer research. On this basis, we investigate monopoly and competition between firms, described via an open-loop differential game which in this setting is equivalent to but analytically more convenient than a closed-loop system. We derive a Nash equilibrium and examine the influence of advertising. We show for the monopoly case that a reduction of the space of all price paths in time to the space of time-constant prices is sensible since the latter in general contains Nash equilibria. We prove that the equilibrium price of the weakest active firm tends to marginal cost as the number of (non-identical) firms grows. Our model is consistent with observed market behavior such as product life cycles.
- Language
-
Englisch
- Bibliographic citation
-
Series: Bonn Econ Discussion Papers ; No. 3/2009
- Classification
-
Wirtschaft
Optimization Techniques; Programming Models; Dynamic Analysis
Existence and Stability Conditions of Equilibrium
Game Theory and Bargaining Theory: Other
Production, Pricing, and Market Structure; Size Distribution of Firms
Business Objectives of the Firm
Marketing
Advertising
- Subject
-
Bounded rationality
social learning
population game
differential game
product life cycle
monopoly
competition
pricing
advertising
Preistheorie
Marktstruktur
Wettbewerb
Betriebliche Preispolitik
Werbung
Spieltheorie
Produktlebenszyklus
Konsumtheorie
Beschränkte Rationalität
Lernprozess
Theorie
- Event
-
Geistige Schöpfung
- (who)
-
Matzke, Christina
Wirth, Benedikt
- Event
-
Veröffentlichung
- (who)
-
University of Bonn, Bonn Graduate School of Economics (BGSE)
- (where)
-
Bonn
- (when)
-
2009
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Matzke, Christina
- Wirth, Benedikt
- University of Bonn, Bonn Graduate School of Economics (BGSE)
Time of origin
- 2009
Other Objects (12)
Bond pricing when the short term interest rate follows a threshold process
Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
Structure follows Process follows Strategy
Function Follows Vision, Vision Follows Reality
Who follows?
Essays on index product pricing
Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice
Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice
Integrated risk management when the stock price follows an exponential Lévy process
Function Follows Form
Form follows function
Bond pricing when the short term interest rate follows a threshold process
Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
Structure follows Process follows Strategy
Function Follows Vision, Vision Follows Reality
Who follows?
Essays on index product pricing
Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice
Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice
Integrated risk management when the stock price follows an exponential Lévy process
Function Follows Form
Form follows function
Bond pricing when the short term interest rate follows a threshold process
Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
Structure follows Process follows Strategy
Function Follows Vision, Vision Follows Reality
Who follows?
Essays on index product pricing
Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice
Competitive Strategies when Consumers are Relative Thinkers: Implications for Pricing, Promotions, and Product Choice
Integrated risk management when the stock price follows an exponential Lévy process
Function Follows Form