Question

What is the relationship between competition and consumer action in these situations?

Answer 1

Answer: In the carrot scenario, Derek is able to find carrots at the price he wishes to pay because one competitor offers a lower price. That competitor is successful in making a sale and competition causes the consumer to keep looking until the desired price is found. Likewise in the computer scenario, Melissa still searches in a number of places for the desired computer. Competition again is driving the consumer action of shopping around. However, in this case, the consumer is unable to find the desired price and ultimately decides that since all competitors are asking the same price, this must be a fair market price. In that case Melissa wants the model she wants and is willing to pay a higher price for it, but only after exhausting all of her available options by checking out many competitor prices.