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Adaptive learning models of consumer behavior

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Hopkins, Ed

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Abstract In a model of dynamic duopoly, optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products. A contrast is made between belief-based and reinforcement learning. Under reinforcement learning, consumers can become locked into the habit of purchasing inferior goods. Such lock-in permits the existence of multiple history-dependent asymmetric steady states in which one firm dominates. In contrast, belief-based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state.
Classification Sociology of Economics; Marketing
Free Keywords Learning; Consumer behavior; Dynamic pricing; Behavioral economics; Reinforcement learning; Market structure
Document language English
Publication Year 2007
Page/Pages p. 348-368
Journal Journal of Economic Behavior & Organization, 64 (2007) 3-4
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)