Experimental evidence suggests that consumers are affected by reference prices and by relative price differences (“relative thinking”). A linear-city model of two retailers that sell two goods suggests how this consumer behavior affects firm strategy and market outcomes. A simple model...

Many studies have shown that decision makers have a tendency to choose the default or standard action among several possible actions. The article develops a model to explore under what conditions it is optimal for a firm facing a strategic decision problem to choose the default action without...

Experimental evidence suggests that consumers are affected by reference prices and by relative price differences ("relative thinking"). A linear-city model of two retailers that sell two goods suggests how this consumer behavior affects firm strategy and market outcomes. A simple model analyzes...