Limited perception and price discrimination in a model of horizontal product differentiation

Marc P. Saur, Markus G. Schlatterer and Stefanie Y. Schmitt

Games and Economic Behavior, 2022, vol. 134, issue C, 151-168

Abstract: We analyze the implications of consumers' limited perception in a model of horizontal product differentiation. Consumers with limited perception do not necessarily notice all goods in the market. Limited perception thus offers a market segmentation into consumers who notice only one good and consumers who notice all goods. Our objective is to analyze whether less perception is harmful to consumers when firms use this segmentation to price discriminate. We show that product differentiation under limited perception is less extreme than under full perception. Consequently, despite firms' ability to price discriminate, average prices may be lower under limited than under full perception. In addition, we show that consumer surplus and welfare are not maximized under full perception but increase for some degree of limited perception.

Keywords: Horizontal product differentiation; Hotelling; Perception; Price discrimination (search for similar items in EconPapers)
JEL-codes: D43 D91 L13 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:134:y:2022:i:c:p:151-168

DOI: 10.1016/j.geb.2022.04.002

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