Manipulating Perception: The Effect of Product Similarity on Valuations and Markets

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

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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.

Original languageEnglish
JournalJournal of Economic Behavior and Organization
Volume190
Pages (from-to)263-286
Number of pages24
ISSN0167-2681
DOIs
Publication statusPublished - Oct 2021
Externally publishedYes

Keywords

  • Perception
  • Similarity
  • Bounded rationality
  • Willingness-to-pay
  • Posted offer market
  • Experimental economics

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