Retail Markets - 2

For items or services that are purchased on a repeated basis, there is a tendency for buyers to find a preferred vendor and do business only or mostly with that preferred vendor. For items that are bought infrequently and which are fairly expensive such as a home entertainment system, an automobile, or an apartment, there is a tendency to do a lot of research up front on both the price and the quality before purchasing the item.

Frequenting a preferred vendor is an example of "satisficing," which means using rules of thumb to make consumer decisions rather than operate under full rationality based on complete information. Though classical theory assumes full rationality, it is more realistic to assume that people satisfice. They do so because acquiring information and making decisions are themselves costly actions. Nonrecurrent purchases of inexpensive items might also be an example of satisficing behavior. Frequently such items are purchased for convenience at higher than the best price available.

Herbert Simon is the father of satisficing and the broader idea known as bounded rationality.For a brief autobiography in html format and Simon's Nobel Prize lecture in PDF format, click the links below.

Autobiography, Nobel Lecture

Now let's consider the opposite behavior of frequenting a preferred vendor. In popular parlance, this is called "comparison shopping." Do you ever do this? For example, do you go through the Sunday newspaper to look through the ads? Do you search Web sites for good deals? Or do you go to the mall or other locations to compare prices as well as to learn what merchandise is available?