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Adaptive learning models of consumer behavior
[journal article]
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 ... view more
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.... view less
Classification
Marketing
Sociology of Economics
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
DOI
https://doi.org/10.1016/j.jebo.2006.02.010
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)