Product design in a market with satisficing customers
نویسندگان
چکیده
We study the product design problem of a revenue-maximizing firm that serves a market where customers are heterogeneous with respect to their valuations and desire for a quality attribute, and are characterized by a perhaps novel model of customer choice behavior. Specifically, instead of optimizing the net utility that results from an appropriate combination of prices and quality levels, customers are “satisficers” in that they seek to buy the cheapest product with quality above a certain customer-specific threshold. This model dates back to Simon’s work in the 1950’s and can be thought of as a model of bounded rationality for customer choice. We characterize the structural properties of the optimal product menu for this model, and explore several examples where such preferences may arise.
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