We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision...

We investigate the marketing practice of framing a price as a discount from an earlier price. We discuss two reasons why a discounted price---rather than a merely low price---can make a consumer more willing to purchase. First, a high initial price can indicate the product is high quality....

When a firm decides which products to offer or put on display, it takes into account the products' ability to attract attention to the brand name as a whole. Thus, the value of a product to the firm emanates from the consumer demand it directly meets, as well as the indirect demand it generates...

This Paper presents a model in which boundedly rational members of an administrative staff calculate resource allocations in real time. We consider a class of hierarchical procedures in which information about payoff functions flows up and is aggregated by a hierarchy, while allocations flow...

We examine how a firm's changing environment and the information constraints of its managers interact as determinants of the size of the firm's administration. Following the recent decentralised information processing literature, we assume that it takes individual managers time to process...

A group of P identical managers has to make a choice between N alternatives. They benefit from reaching the decision quickly. In order to learn which is the best option, the alternatives have to be compared. A manager is able to identify the better one of two alternatives only with a certain...

We take the hierarchical resource allocation model in Van Zandt (2003a) and derive a simpler, reduced-form model of balanced hierarchies. This model uses continuous approximations; we derive bounds on the errors due to these approximations. We then give results that indicate that optimal...

Companion papers develop a model of real-time hierarchical computation of resource allocations by boundedly rational members of an administrative staff. The nodes of a hierarchy are multi-person decision-making units offices. The current Paper uses a reduced form to address specific questions...

This Paper shows that price rigidity evolves in an economy populated by imperfectly rational agents who experiment with alternative rules of thumb. In the model, firms must set their prices in the face of aggregate shocks. The payoff depends on the level of aggregate demand, as well as on their...

We study a vertically differentiated market where two firms simultaneously choose the quality and price of the good they sell and where consumers also care for the average quality of the goods supplied. Firms are composed of two factions whose objectives differ: one is maximizing profit while...