Market Boundaries and Product Choice: Illustrating Attraction and Substitution Effects

Abstract

What happens to the share of choices each item receives when the choice set boundaries are extended by adding a new item that is extremely good on one dimension but poor on the others? First, there is a substitution effect whereby the new item takes choice share mainly from similar items in the set. Second, there is an attraction effect resulting in a general shift of preference toward the added item. Experimental studies show that choice patterns conflict with current theoretical and common-sense ideas about the effect of added alternatives on choice.