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Free keywords:
Competition, Decoy good, Salience
JEL:
L13 - Oligopoly and Other Imperfect Markets
JEL:
L15 - Information and Product Quality; Standardization and Compatibility
JEL:
D03 - Behavioral Microeconomics: Underlying Principles
JEL:
D21 - Firm Behavior: Theory
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 manufacturers’ main product and the unattractive feature of the fringe product are salient.
