Impulse Buying and Equilibrium Price Dispersion∗

Many purchases are unplanned and so do not fit comfortably within standard neoclassical consumer theory. We model such ”impulse” purchases by a simple reservation price rule used by impatient consumers. The equilibrium exhibits price dispersion in pure strategies, with lower price firms earning higher profits. The range of price dispersion increases with the number of firms: the highest price is the monopoly one, while the lowest price tends to marginal cost. The average transaction price remains substantially above marginal cost even in the limit. Reducing the fraction of impulse buyers may increase prices, so bargain-hunters may hurt other consumers.