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The Interplay Between Obfuscation and Prominence in Price Comparison Platforms

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  • Samir Mamadehussene

    (Católica-Lisbon School of Business and Economics, Universidade Católica Portuguesa, 1649-023 Lisboa, Portugal)

Abstract

This paper analyzes price comparison platforms’ equilibrium design of their search environments, namely the order under which firms are displayed (having a prominent firm or listing firms randomly) and how much price complexity firms are able to use. It is found that (1) the possibility to obfuscate amplifies firms’ willingness to pay for the prominent position; (2) when platforms sell prominence, they optimally allow for more obfuscation than they would if they were to display firms randomly; and (3) if platforms are sufficiently differentiated, they find it optimal to sell prominence. Thus, platforms exploit their market power over consumers by implementing a prominent position and allowing for large levels of obfuscation. This paper also finds that in equilibrium, there is tension between platforms and firms regarding how much price complexity is used: firms would like to use even more obfuscation than what the platform allows, so the platform must monitor firms’ prices to make sure that they are not excessively complex.

Suggested Citation

  • Samir Mamadehussene, 2020. "The Interplay Between Obfuscation and Prominence in Price Comparison Platforms," Management Science, INFORMS, vol. 66(10), pages 4843-4862, October.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:10:p:4843-4862
    DOI: 10.1287/mnsc.2019.3403
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    6. Francisco Silva & Samir Mamadehussene, 2020. "The Equivalence Between Sequential and Simultaneous Firm Decisions," Documentos de Trabajo 541, Instituto de Economia. Pontificia Universidad Católica de Chile..
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