TY - JOUR
T1 - Selling to consumers who cannot detect small differences
AU - Chung, Kim Sau
AU - Liu, Erica Meixiazi
AU - Lo, Melody
N1 - Funding Information:
We thank co-editor Marciano Siniscalchi, two referees, as well as Atila Abdulkadiroglu, Attila Ambrus, Heski Bar-Issac, Gabriel Carroll, Jimmy Chan, Jiahua Che, Faruk Gul, Yuichiro Kamada, Chia-hui Lu, Mike Peters, Luca Rigotti, Marzena Rostek, Maria Sáez-Marti, Curtis Taylor, Julian Wright, and participants at various seminars and conferences for their very helpful comments. The work described in this paper was partially supported by the Research Grants Council of Hong Kong (GRF 12501019 & 14500514 ).
Funding Information:
We thank co-editor Marciano Siniscalchi, two referees, as well as Atila Abdulkadiroglu, Attila Ambrus, Heski Bar-Issac, Gabriel Carroll, Jimmy Chan, Jiahua Che, Faruk Gul, Yuichiro Kamada, Chia-hui Lu, Mike Peters, Luca Rigotti, Marzena Rostek, Maria S?ez-Marti, Curtis Taylor, Julian Wright, and participants at various seminars and conferences for their very helpful comments. The work described in this paper was partially supported by the Research Grants Council of Hong Kong (GRF 12501019 & 14500514).
PY - 2021/3
Y1 - 2021/3
N2 - This paper studies how sellers behave when their consumers have difficulty in detecting small differences. These consumers pose a problem because, even if a good deal exists, they cannot appreciate it if it is barely better than their outside options. This creates a role for a second deal, either marketed by the same seller or by another seller, even when consumers are homogeneous in their tastes. If the same seller markets the second deal, it will strategically position the first as a good deal, and the second as a bad deal, and use the bad deal to help consumers appreciate the good deal. If another seller markets the second deal, the two sellers will become specialized as, respectively, good-deal and bad-deal providers. Both sellers free-ride each other. The good-deal provider is happy because the bad deal helps consumers appreciate its good deal; while the bad-deal provider hides behind the presence of the good deal and manages to make a sale some of the time.
AB - This paper studies how sellers behave when their consumers have difficulty in detecting small differences. These consumers pose a problem because, even if a good deal exists, they cannot appreciate it if it is barely better than their outside options. This creates a role for a second deal, either marketed by the same seller or by another seller, even when consumers are homogeneous in their tastes. If the same seller markets the second deal, it will strategically position the first as a good deal, and the second as a bad deal, and use the bad deal to help consumers appreciate the good deal. If another seller markets the second deal, the two sellers will become specialized as, respectively, good-deal and bad-deal providers. Both sellers free-ride each other. The good-deal provider is happy because the bad deal helps consumers appreciate its good deal; while the bad-deal provider hides behind the presence of the good deal and manages to make a sale some of the time.
KW - Compete in utility space
KW - Duopoly
KW - Intransitive indifference
KW - Monopoly
UR - http://www.scopus.com/inward/record.url?scp=85100117117&partnerID=8YFLogxK
U2 - 10.1016/j.jet.2021.105186
DO - 10.1016/j.jet.2021.105186
M3 - Journal article
AN - SCOPUS:85100117117
SN - 0022-0531
VL - 192
JO - Journal of Economic Theory
JF - Journal of Economic Theory
M1 - 105186
ER -