סמינר באסטרטגיה וכלכלת עסקים

Biased Beliefs in Search Markets 

Abstract: We study the implications of biased consumer beliefs for search market outcomes. We assume that biased consumers base their search strategy on a belief function which specifies for any (true) distribution of utility offers in the market a possibly incorrect distribution of utility offers. We characterize market outcomes for all belief functions that satisfy certain regularity conditions. In particular, we show that if the belief function is non-pessimistic, a novel type of equilibrium may emerge in which firms make penny sales offers in order to meet the unreasonable high expectations of biased consumers, which then become partially self-fulfilling. As a result, the presence of biased consumers may improve the welfare of all consumers. We find that an intermediate level of naivete creates the most competition among firms and maximizes consumer welfare.

לפרטים נוספים ניתן לפנות לרחל טהר: racheltahar@tauex.tau.ac.il