Empirical studies show that tradable consumption goods are more expensive in rich countries. This paper proposes a simple yet novel explanation for this apparent failure of the law of one price: Consumers’ utility from tradable goods depends on their consumption of complementary goods and services. Monopolistically competitive firms charge higher prices in countries with more complementary good...

Consumers incur many transaction costs in purchasing and using most products. This paper examines the effects of a reduction in such consumer transaction costs caused by market-level technological advances. Using a model in which consumers are simultaneously heterogenous in their transaction costs and in their marginal valuation of product quality, we highlight two mechanisms that can cause suc...

Individual consumers often are assumed to follow certain relatively simple budgeting rules when making expenditure decisions. For example, how much to save may be decided upon almost separately from decisions on how much to spend on food, services, and other day-to-day consumables. Of course, it is well known that such "decentralized" budgeting decisions can fit well within standard consumer th...

We develop a model that fleshes out, extends, and modifies existing models of reference dependent preferences and loss aversion while accomodating most of the evidence motivating these models. Our approach makes reference-dependent theory more broadly applicable by avoiding some of the ways that prevailing models—if applied literally and without ancillary assumptions—make variously weak and inc...

We model a duopoly in which media compete in both the consumer and the advertising markets. The advertisers’ payoffs depend on the coverage in the consumer market, hence there are cross-market externalities but no direct transfers are possible. At a (sunk) cost, platforms select the quality they offer consumers, and the prices they charge consumers and advertisers. Under well-defined conditions...

In practice, manufacturing systems are never perfect and may have low quality outputs. Therefore, different decisions such as reprocessing, sale at lower prices or diminishing are made according to industry and market. This paper investigates the importance of supply chain coordination through developing two models in centralized decision-making for an imperfect quality manufacturing system wit...

Marketing literature has long recognized that price response need not be monotonic and symmetric, but has yet to provide generalizable market-level insights on reference price type, asymmetric thresholds and sign and magnitude of elasticity transitions. In this paper, we introduce smooth transition models to study reference-based price response across 25 fast moving consumer good categories. Ou...

A statistical generalization is made of microeconomics in the spirit of going from classical to statistical mechanics. The price and quantity of every commodity1 traded in the market, at each instant of time, is considered to be an independent random variable: all prices and quantities are considered to be stochastic processes, with the observed market prices being a random sample of the stocha...

In the textbook conception of economics, consumers use prices to determine the bundle of purchases that maximize their utility subject to the constraint that the total value of these purchases cannot exceed their income. In this paper, I consider the implications of letting consumers have somewhat different reactions to prices. First, I allow consumers to be unsophisticated when they use price ...

We analyze the implications of consumer privacy for competition in the marketplace. We consider a market where rms set prices and disclosure levels for consumer information and consumers observe both before deciding which rm to patronize and how much information to provide it with. The provision and disclosure of information presents tradeo s for all market participants. Consumers bene t from p...