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

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  • Oren Bar-Gill

Abstract

This paper studies the implications of consumer misperception in a market fora (horizontally) differentiated product. Two distinct types 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 benefit of one firm's product relativeto the product offered by its competitor. The paper analyzes the implications of misperception for social welfare and consumer surplus. In particular, the effectsof price discrimination are considered for each type of misperception.

Suggested Citation

  • Oren Bar-Gill, 2020. "Consumer Misperception in a Hotelling Model: With and Without Price Discrimination," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(1), pages 180-203.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2020-0021
    DOI: 10.1628/jite-2020-0021
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    More about this item

    Keywords

    horizontal product differentiation; Hotelling model; price discrimination; consumer misperception;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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