Brand premia driven by perceived vertical differentiation in markets with information disparity and optimistic consumers

Abstract We have considered a duopoly with perceived vertical differentiation, information disparity and optimistic consumers. When firms compete for informed uninformed consumers, the former contribute to raise product quality, while equilibrium prices increase misperception of latter, in our first equilibrium. Brand premium includes quality rent. In second equilibrium, consumers buy low-quality goods minimum differentiation without Bertrand competition occurs. The brand is just rent, however, an share implies price re-balancing rent reduction. Consumers externalities arise both equilibria. Firms only within third fourth as ones are passive represent captive market. Uninformed one case overoptimistic, they high good can be cheated approach real differential model reduces standard perfect information.