Price signaling with salient-thinking consumers

Elias Carroni, Andrea Mantovani and Antonio Minniti

Games and Economic Behavior, 2023, vol. 138, issue C, 238-253

Abstract: This paper examines the signaling role of prices in a context of salient thinking. Consumers cannot observe product quality directly, and they focus on the product attribute – either quality or price – that stands out in the market. Our analysis shows that salience considerations mitigate the incentive to signal quality via price. Moreover, depending on the difference in quality between products, the separating price of the high-quality seller can be inflated or deflated in relation to a set-up of rational consumers. Our findings indicate that certain ways of setting prices for experience goods can be explained by combining price signaling with salient thinking.

Keywords: Salient thinking; Price signaling; Separating equilibria; Experience goods (search for similar items in EconPapers)
JEL-codes: D82 D83 D90 L15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:138:y:2023:i:c:p:238-253

DOI: 10.1016/j.geb.2022.12.010

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