We analyze a market with n rational firms (doctors) and a continuum of boundedly rational consumers (patients). Following Spiegler (2006a), we as- sume that patients are not familiar with the market and rely on anecdotes. We analyze the price setting game played by doctors with given, different healing qualities. Doctors know their own quality, as well as the qualities of their competitors. In the unique equilibrium all doctors, no matter how bad, earn positive profits.
If doctors (even costlessly) choose their qualities, doctors mainly offer mediocre qualities in all SPNE. Welfare may strictly decrease in the number of doctors.