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Buyer confusion and market prices

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Author Info

  • KalaycI, Kenan
  • Potters, Jan

Abstract

We employ a price setting duopoly experiment to examine whether buyer confusion increases market prices. Each seller offers a good to buyers who have homogeneous preferences. Sellers decide on the number of attributes of their good and set prices. The number of attributes bears no cost to the sellers and does not affect the value of the good to the buyers but adds complexity to buyers' evaluation of the goods. The experimental results indicate that the buyers make more suboptimal choices and that prices are higher when the number of attributes of the goods is higher. Moreover, prices and profits are higher than those in a benchmark treatment with perfectly rational (robot) buyers.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Pages: 14-22

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Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:14-22

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Experiment Bounded rationality Buyer confusion Product complexity Market power;

References

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Citations

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Cited by:
  1. Crosetto, Paolo & Gaudeul, Alexia, 2012. "Do consumers prefer offers that are easy to compare? An experimental investigation," MPRA Paper 41462, University Library of Munich, Germany.
  2. Naomi E. Feldman & Bradley J. Ruffle, 2012. "The Impact Of Tax Exclusive And Inclusive Prices On Demand," Working Papers 1207, Ben-Gurion University of the Negev, Department of Economics.
  3. Huck, Steffen & Lünser, Gabriele K. & Tyran, Jean-Robert, 2013. "Price competition and reputation in markets for experience goods: An experimental study," Discussion Papers, Research Unit: Economics of Change SP II 2013-312, Social Science Research Center Berlin (WZB).
  4. Gu, Yiquan & Wenzel, Tobias, 2012. "Strategic obfuscation and consumer protection policy in financial markets: Theory and experimental evidence," DICE Discussion Papers 76, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  5. Ioana Chioveanu & Jidong Zhou, 2012. "Price Competition and Consumer Confusion," CEDI Discussion Paper Series 12-08, Centre for Economic Development and Institutions(CEDI), Brunel University.
  6. Kalaycı, Kenan & Serra-Garcia, Marta, 2012. "Complexity and Narrow Bracketing in Credit Choice," Discussion Papers in Economics 13035, University of Munich, Department of Economics.
  7. Steffen Huck & Jidong Zhou, 2011. "Consumer Behavioural Biases in Competition: A Survey," Working Papers 11-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Barrutia Legarreta, José María & Espinosa Alejos, María Paz, 2012. "Consumer Expertise or Credit Risk? An empirical analysis of mortgage pricing," DFAEII Working Papers 2012-04, University of the Basque Country - Department of Foundations of Economic Analysis II.
  9. Kaminski, Bogumil & Latek, Maciej, 2012. "A Simple Model of Bertrand Duopoly with Noisy Prices," MPRA Paper 41333, University Library of Munich, Germany.
  10. Ioanna Chioveanu & Jidong Zhou, 2011. "Price Competition with Consumer Confusion," Working Papers 11-19, New York University, Leonard N. Stern School of Business, Department of Economics.

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