Price dispersion and optimal price categories with limited memory consumers

Omer F. Baris, Levent Kutlu

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

In this paper, we study consumers with limited memory and examine the effects of their price categorization on the pricing strategies of competing firms. The valuations of consumers are assumed to be heterogeneous. We find that it is possible to observe price dispersion even when each firm charges a single price if the consumers categorize prices non-optimally. Moreover, we demonstrate that the likelihood of a price dispersion outcome is reduced when consumers with limited memory set up the price categories optimally. These findings suggest that the consumers' limited memory and their sub-optimal behavior, that is, their inability to choose price categories optimally can be a reason for observed price dispersion.
Original languageEnglish
Pages (from-to)n/a-n/a
JournalManagerial and Decision Economics
DOIs
Publication statusPublished - Jan 2018

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