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Review of Industrial Organization

, Volume 50, Issue 1, pp 1–25 | Cite as

If It’s All the Same to You: Blurred Consumer Perception and Market Structure

  • Edward J. D. Webb
Article

Abstract

Consumers with bounded perception treat sufficiently similar goods as homogeneous. The effects of bounded perception on a vertically differentiated duopoly with sequential quality choice are examined. When quality entails fixed costs the market becomes more concentrated. When quality entails marginal costs, the second mover may profitably imitate the product of its rival, and the market is either more or less concentrated depending on how bounded perception is. When firms incur entry costs, neither firm may opt to produce when quality entails marginal costs, whereas at least one firm always produces when quality entails fixed costs.

Keywords

Perception Similarity Bounded rationality Bertrand competition Vertical differentiation Oligopoly 

Notes

Acknowledgments

I would like to thank Alexander Sebald, Peter Norman Sørensen, Dan Nguyen, Lawrence J. White and two anonymous referees, as well as seminar participants at the University of Copenhagen, the 9th Nordic Conference on Behavioural and Experimental Economics (2014) and the 2013 Danish Graduate Program in Economics workshop for helpful comments.

Compliance with Ethical Standards

Conflict of interest

The authors declare that they have no conflict of interest.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CopenhagenKøbenhavn KDenmark
  2. 2.Department of PsychologyUniversity of CopenhagenKøbenhavn KDenmark

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