Spurious Complexity and Common Standards in Markets for Consumer Goods
AbstractBehavioural and industrial economists have argued that, because of cognitive limitations, consumers are liable to make sub-optimal choices in complex decision problems. Firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. This paper models a countervailing force. Consumers' choice problems are simplified if competing firms follow common conventions about tariff structures. Because such a 'common standard' promotes price competition, a firm's use of it signals that its products offer value for money. If consumers recognize this effect, there can be a stable equilibrium in which firms use common standards and set competitive prices.
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 79 (2012)
Issue (Month): 314 (04)
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Other versions of this item:
- Alexia Gaudeul & Robert Sugden, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," Working Papers 07-20, Centre for Competition Policy, University of East Anglia.
- Gaudeul, Alexia, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," MPRA Paper 19647, University Library of Munich, Germany.
- Alexia Gaudeul & Robert Sugden, 2009. "Spurious complexity and common standards in markets for consumer goods," Jena Economic Research Papers 2009-084, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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