2009/11 | LEM Working Paper Series | |
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Markets fo Heterogeneous Products: a Boundedly Rational Consumer Model |
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Marco Valente |
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Keywords | ||
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Evolutionary Economics, Consumer Theory, Bounded
Rationality, Marketing and Preferences, Simulation Models, Market
Structure
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JEL Classifications | ||
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C63, D11, D81, L10, L15, M30
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Abstract | ||
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The paper is based on the acknowledgement that properties of markets
stemming from features of demand are too frequently overlooked in the
economic literature, and a re-balancing is necessary to properly
account for theoretical and empirical phenomena. We sustain that one
of the most relevant reasons for the neglect of the role of demand is
the lack of an adequate representation of consumers. This claim is
particu- larly relevant for evolutionary economics since its critique
to the mainstream approach stopped at the representation of firms. The
standard utility maximization approach to consumers? theory is even
less defensible than the related assumption of producers?
rationality, given the lack of competitive pressure on consumers. As
a contribution to this theoretical gap, the paper presents a model for
consumer based on the assumption of bounded rationality and inspired
to the literature on experimental psychology. The proposed model can
be applied to multi-dimensional products/services and relies on
intuitive and potentially observable parameters, allow- ing for a wide
range of theoretical and empirical applications. Moreover, the
intrinsic structure of the model provides a clear definition of
preferences, meant as ex-ante decisional criteria, distinguished from
post-hoc justification of any decisional result. Though structurally
simple, the proposed model is very flexible and allows for a clear
exploration of the impact of specific demand features on the produced
results. Several experiments show that the model can be successfully
applied both to generate standard results and to implement complex
configurations such as those of generated by large markets with
heterogeneous products. Among the results presented, the most
relevant concerns the identification of two classes of market
segmentation, generated by the identical suppliers and demand?s ex-
ogenous factors, but different consumers? decisional mechanisms. The
results produced are observationally equivalent, but are shown to have
radically different properties, and are proposed as initial elements
of a taxonomy for the classification demand classes, likely to explain
common properties across different markets.
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