Abstract
In most consumer markets, firms sell similar products under multiple brand names. Hence, there are typically more brands for sale than competing firms selling them. This holds in over 77% of 358 consumer markets tracked by MRI Simmons. In the median market, there are 27% fewer firms than major brands. We document, using a novel survey design, that consumers severely underestimate brand co-ownership and overestimate the number of competing firms across eight studied markets. We call this bias the illusion of competition. If the number of brands exceeds the number of firms by five, on average subjects overestimate the number of firms by four. Further, if two brands are co-owned, subjects realize this only 8.1% of the time. As a result, subjects' responses imply substantially underestimated measures of market concentration. Using a novel experimental design, we show that correcting the illusion of competition causes subjects to believe markets are less competitive and to be more supportive of antitrust policies. Documenting the prevalence of the illusion of competition is important because our companion paper shows that the bias can lead to higher equilibrium prices (Grubb and Westphal 2025).