Out-group homogeneity bias is the tendency "...to perceive out-group members as being more homogeneous in their characteristics than in-group members" (Linville, Fischer and Salovey 1989). Globalization and the economic necessity for growing businesses to find new potential customers creates many situations in which marketers interact with out-groups. For example, marketers may serve such consumers in "foreign" countries or minority consumers at home with whom they do not identify. There is strong prima facie evidence that out-group homogeneity bias can influence marketing decisions through marketers underestimating taste variance in groups that they don't identify with.
I investigate the effect of out-group homogeneity bias on a marketer's decisions and profits in a competitive scenario. To ensure a manageable scope, I focus on bias in strategic market entry decisions. This is an especially promising area of research as not only are out-groups commonly encountered in new markets, but marketers only make a handful of such decisions in their careers and the outcome of such decisions may make or break firms.
The major contributions of this dissertation are in that it: (1) Examines how an extensively demonstrated bias would impact marketing. (2) Uses a model of market entry from theoretical biology examine the effects of errors in competition. (3) Demonstrates the impact a marketer's error in payoff perceptions has on competitors, showing how bias reduces the profits of the competitor of those experiencing the bias. (4) Shows that learning about the bias will be slow, at best. (5) Shows market selection will not necessarily remove the bias from a population of marketers and provides a critical theoretical justification for using behavioral considerations in the study of markets.