Price Signaling with Salient-thinking Consumers

29 Pages Posted: 19 Nov 2019 Last revised: 3 Jun 2021

See all articles by Elias Carroni

Elias Carroni

University of Bologna - Department of Economics

Andrea Mantovani

University of Toulouse - Toulouse Business School

Antonio Minniti

University of Bologna

Date Written: June 3, 2021

Abstract

This paper studies the signaling role of prices in a context of salient thinking. Consumers cannot directly observe product quality and their attention can be directed towards the product attribute - quality or price - that stands out in the market. Our analysis shows that separation is less likely to occur when the salience bias is high. We also show that salience, rather than a signaling motive, may explain high prices, whereas even low prices, when deflated by salience, may signal quality. This contrasts with the conventional wisdom that a high price signals superior quality.

Keywords: Salient thinking, Price signaling, Separating equilibria

JEL Classification: D82, D83, D90, L15

Suggested Citation

Carroni, Elias and Mantovani, Andrea and Minniti, Antonio, Price Signaling with Salient-thinking Consumers (June 3, 2021). Available at SSRN: https://ssrn.com/abstract=3483514 or http://dx.doi.org/10.2139/ssrn.3483514

Elias Carroni

University of Bologna - Department of Economics ( email )

Bologna
Italy

HOME PAGE: http://sites.google.com/site/eliascarroninuoro/

Andrea Mantovani

University of Toulouse - Toulouse Business School ( email )

20, bd Lascrosses
BP 7010
Toulouse, 31068
France

Antonio Minniti (Contact Author)

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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