Consumer Misperception in a Hotelling Model: With and Without Price Discrimination

Forthcoming, Journal of Institutional and Theoretical Economics

Harvard John M. Olin Discussion Paper No. 06/2019

Harvard Public Law Working Paper No. 19-30

36 Pages Posted: 21 Jun 2019 Last revised: 9 Oct 2019

Date Written: June 16, 2019

Abstract

This paper studies the implications of consumer misperception in a market for a (horizontally) differentiated product. Two distinct type of misperceptions are considered: (i) a common misperception that leads consumers to similarly overestimate the benefit from both firms’ products; and (ii) a relative misperception that leads consumers to overestimate the relative benefit of one firm’s product as compared to the product offered by its competitor. The paper analyzes the implications of misperception for social welfare and consumer surplus. In particular, the effects of price discrimination are considered, for each type of misperception.

Keywords: Horizontal product differentiation, Hotelling model, price discrimination, consumer misperception

JEL Classification: D43, K21, L13, L40

Suggested Citation

Bar-Gill, Oren, Consumer Misperception in a Hotelling Model: With and Without Price Discrimination (June 16, 2019). Forthcoming, Journal of Institutional and Theoretical Economics; Harvard Public Law Working Paper No. 19-30. Available at SSRN: https://ssrn.com/abstract=3405062

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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