The Role of (Mis)Perceptions in Product Choice: Evidence from a Randomized Trial In Zambia

Abstract

We study whether small retailers are deterred from stocking products by misperceptions about their profitability. We design a simple algorithm to identify products that are not stocked by many retailers despite being stocked and profitably sold by similar shops. We find that retailers not stocking the product generally expect the products to be unprofitable. We subsidize a randomly selected subset to stock the product and find that they earn comparable profits to those who endogenously stock the product at baseline. Treated retailers are significantly more likely to stock the product one month after incentives end, suggesting a change in perceptions.