Cherry Picking: Should Sellers Let Buyers Sort?

Abstract

Agricultural goods sold in supermarkets often vary significantly in quality. Yet, when these goods are sold at a single price, consumers may expend significant time and effort to sort goods for quality. From the standpoint of sellers, the resources expended on sorting only serve to reallocate high quality goods to consumers who sort intensively and low quality goods to consumers who sort minimally or not at all. Because these lower quality goods are less attractive to consumers who do not sort, sellers may be forced to lower prices. Why then do sellers allow sorting when they might prevent it?This paper presents a demand model where sellers choose whether to allow sorting. Sellers may allow consumer sorting when it fosters the distribution of qualities that occurs under quality discrimination, despite the associated reduction in the total gains to trade through sorting costs and quality efficiency loss. In general, sorting may allow sellers to improve the quality of goods for marginal consumers who constrain price-setting for sellers with market power. The total effect on price, amount sold and welfare is ambiguous due to the role of market power. Simulations are provided to demonstrate these effects.