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"The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality"
We propose that a crowded product space motivates consumers to better discriminate between choice options of different quality. Specifically, this paper reports evidence from three controlled experiments and one natural experiment that people are prepared to pay more for high-quality products but less for low-quality products when they are considered in the context of a dense, as opposed to a sparse, set of alternatives. To explain this effect, we propose that consumers uncertain about the importance of quality learn from observing market outcomes. Product proliferation reveals that other consumers care to discriminate among similar alternatives, and this inference raises the importance of quality in decision making.
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