Manipulating perception: The effect of product similarity on valuations and markets

Andreas Gotfredsen, Carsten S. Nielsen, Alexander C. Sebald and Edward J.D. Webb

Journal of Economic Behavior & Organization, 2021, vol. 190, issue C, 263-286

Abstract: We study the economic impact of perceptual limitations using experimental goods for which the difficulty of perceiving the difference between them can be manipulated by altering the similarity of their visual representation. In our first experiment, we found that subjects’ willingness-to-pay for goods became more similar when it was harder to discriminate between them. Building on this result, we ran a second experiment where the same experimental goods were traded in a market with heterogeneous buyer preferences and seller market power. Buyers were less likely to choose the option which maximises consumer surplus when discriminating between products was harder, and buyer payoffs were lower. We find indications that buyers used a different method of constructing their valuations in the market than in individual choice, and there was weak evidence that using different methods were beneficial for buyers. Seller prices and profits were not dependent on how easy it was for buyers to discriminate between goods.

Keywords: Perception; Similarity; Bounded rationality; Willingness-to-pay; Posted offer market; Experimental economics (search for similar items in EconPapers)
JEL-codes: D4 D8 D9 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016726812100295X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:190:y:2021:i:c:p:263-286

DOI: 10.1016/j.jebo.2021.07.007

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().