Consumer's response to price distribution and sigma-overload under time allocation Articles uri icon

authors

  • ALVAREZ, FRANCISCO
  • Rey, José Manuel
  • GUTIERREZ SANCHIS, RAUL

publication date

  • January 2016

start page

  • 242

end page

  • 256

volume

  • 291

International Standard Serial Number (ISSN)

  • 0377-0427

Electronic International Standard Serial Number (EISSN)

  • 1879-1778

abstract

  • 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 sigma of prices so that an increase in price spread produces more welfare for small values of sigma but it has a negative effect for larger values of sigma. This new phenomenon is termed sigma-overload. It is also shown that a consumer that is content with shopping from a reduced sample of options - a satisficer - avoids sigma-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. (C) 2015 Elsevier B.V. All rights reserved.

keywords

  • choice overload