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- Title
SATISFICING AND PRIOR-FREE OPTIMALITY IN PRICE COMPETITION.
- Authors
GÜTH, WERNER; LEVATI, MARIA VITTORIA; PLONER, MATTEO
- Abstract
We apply a model of satisficing to oligopoly markets with price competition. Sellers have profit aspirations reflecting their conjectures about their competitors' behavior and search for a price guaranteeing these aspirations. Because it seems implausible that people have detailed priors on the others' actions, we postulate that sellers entertain multiple conjectures to which no probabilities can be assigned. This allows us to propose a theory of 'prior-free' optimality and to examine experimentally whether people comply with it. We find that decision makers have difficulties in making prior-free optimal choices. Most are content to just satisfice, although ways to aspire to more ambitious profits were obviously available. ( JEL C92, C72, D43)
- Subjects
OLIGOPOLIES; ECONOMIC competition; PRICES; SATISFACTION; DECISION making; OPTIMAL designs (Statistics); ECONOMIC models
- Publication
Economic Inquiry, 2012, Vol 50, Issue 2, p470
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/j.1465-7295.2010.00365.x