SFB 303 Discussion Paper No. A - 558

Author: De Fraja, Gianni, and Indrajit Ray
Title: Slot Allocation: A Model of Competition between Firms when Consumers Are Procedurally Rational
Abstract: We present a simple model where consumers are boundedly rational: they cannot compare two consumption bundles; instead, they have some fundamental preferences and a selection procedure. In this set up, we analyse a non-cooperative game played by firms who strategically allocate some non-differentiated services to different slots. In any Nash equilibrium of the slot allocation game the firms choose the same allocation. There may be multiple equilibria one of which is always to allocate according to the consumer's taste. Finally, as the number of firms increases, only the allocation preferred by the consumers remains as an equilibrium which may not be the profit-maximising one.
Keywords: Bounded Rationality, Slot Allocation, Multiproduct Firms
JEL-Classification-Number: C72, D11, D21, L10
Creation-Date: September 1997
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