Consumer Misperception in a Hotelling Model: With and Without Price Discrimination

This paper studies the implications of consumer misperception in a market for a (horizontally) differentiated product. Two distinct types of misperceptions are considered: (i) a common misperception that leads consumers to similarly overestimate the benefit from both firms' products; and (ii) a...

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Bibliographic Details
Published in:Journal of institutional and theoretical economics 2020-01, Vol.176 (1), p.180-203
Main Author: Bar-Gill, Oren
Format: Article
Language:English
Subjects:
Advertising
Alliances
Consumers
Defective products
Discrimination
Efficiency
Prices
Product differentiation
Profits
Social welfare
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Summary:This paper studies the implications of consumer misperception in a market for a (horizontally) differentiated product. Two distinct types of misperceptions are considered: (i) a common misperception that leads consumers to similarly overestimate the benefit from both firms' products; and (ii) a relative misperception that leads consumers to overestimate the benefit of one firm's product relative to the product offered by its competitor. The paper analyzes the implications of misperception for social welfare and consumer surplus. In particular, the effects of price discrimination are considered for each type of misperception.
ISSN:0932-4569
1614-0559
DOI:10.1628/jite-2020-0021