Price Signaling with Salient-thinking Consumers

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: 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