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Salience, competition, and decoy goods

Author

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  • Herweg, Fabian
  • Müller, Daniel
  • Weinschenk, Philipp

Abstract

We consider a brand manufacturer who can offer, next to its high-quality product, also a decoy good and faces competition by a competitive fringe that produces low quality. We show that the brand manufacturer optimally provides a decoy good to boost the demand for its main product if consumers’ purchasing decisions are distorted by salient thinking. The optimal decoy good is designed such that the superior quality of the brand manufacturer’s main product and the unattractive feature of the fringe product are salient.

Suggested Citation

  • Herweg, Fabian & Müller, Daniel & Weinschenk, Philipp, 2017. "Salience, competition, and decoy goods," Economics Letters, Elsevier, vol. 153(C), pages 28-31.
  • Handle: RePEc:eee:ecolet:v:153:y:2017:i:c:p:28-31
    DOI: 10.1016/j.econlet.2016.12.026
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    References listed on IDEAS

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    1. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2016. "Competition for Attention," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 481-513.
    2. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
    3. Markus Dertwinkel-Kalt & Katrin Köhler & Mirjam R. J. Lange & Tobias Wenzel, 2017. "Demand Shifts Due to Salience Effects: Experimental Evidence," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 626-653.
    4. Huber, Joel & Payne, John W & Puto, Christopher, 1982. "Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, Oxford University Press, vol. 9(1), pages 90-98, June.
    5. Dertwinkel-Kalt Markus, 2016. "Salience and Health Campaigns," Forum for Health Economics & Policy, De Gruyter, vol. 19(1), pages 1-22, June.
    6. Amos Tversky & Itamar Simonson, 1993. "Context-Dependent Preferences," Management Science, INFORMS, vol. 39(10), pages 1179-1189, October.
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    Citations

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    Cited by:

    1. Friehe, Tim & Pham, Cat Lam, 2020. "Settling with salience-biased defendants," Economics Letters, Elsevier, vol. 192(C).
    2. Dertwinkel-Kalt, Markus & Wenzel, Tobias, 2019. "Focusing and framing of risky alternatives," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 289-304.
    3. Helfrich, Magdalena & Herweg, Fabian, 2020. "Context-dependent preferences and retailing: Vertical restraints on internet sales," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    4. Baomin Dong & Guixia Guo & Frank Yong Wang, 2021. "A signalling model of loss leader pricing strategy," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 289-307, June.
    5. Friehe, Tim & Pham, Cat Lam, 2020. "Products liability when consumers are salient thinkers," Economics Letters, Elsevier, vol. 186(C).

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    More about this item

    Keywords

    Competition; Decoy good; Salience;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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