Universität zu Köln

Apffelstaedt, Arno ORCID: 0000-0002-6019-7162 and Mechtenberg, Lydia (2021). Competition for Context-Sensitive Consumers. Manage. Sci., 67 (5). S. 2828 - 2845. CATONSVILLE: INFORMS. ISSN 1526-5501

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Abstract

When preferences are sensitive to context, firms may influence purchase decisions by designing the environment of consumption choices. This paper studies how competitive retailers optimally design their product line if preferences at the store depend on whether the choice set draws consumer attention to the quality or price of a product. Before making a purchase decision, a consumer chooses among retailers without (fully) anticipating that her preferences at the store are malleable. We show that this setup can align evidence on retailer marketing practices and the existence of loss leaders with the experimental literature on decoy effects: in equilibrium, retailers use loss leaders to attract the consumer to the store and decoy products to draw consumer attention at the store to more profitable alternatives featuring a higher price (inducing a profitable upsell) or lower production cost (inducing a profitable downsell). We embed and compare the predictions of three recent specifications of choice-set dependent attention-namely, Salience, Focusing, and Relative Thinking. All three specifications predict that firms construct choice environments that utilize decoy effects to up- or downsell the consumer. Because they differ in how attention can be directed using the product line, however, they differ in their predictions of how the decoy will be positioned in the price-quality space.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Apffelstaedt, Arno UNSPECIFIED orcid.org/0000-0002-6019-7162 UNSPECIFIED Mechtenberg, Lydia UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-569941
DOI:	10.1287/mnsc.2020.3675
Journal or Publication Title:	Manage. Sci.
Volume:	67
Number:	5
Page Range:	S. 2828 - 2845
Date:	2021
Publisher:	INFORMS
Place of Publication:	CATONSVILLE
ISSN:	1526-5501
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language SELF-CONTROL; CHOICE; MODEL; BAIT; ALTERNATIVES; JUDGMENT; SALIENCE; SEARCH; SWITCH; MYOPIA Multiple languages Management; Operations Research & Management Science Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/56994