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Price Competition under Limited Comparability

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  • Michele Piccione
  • Ran Spiegler

Abstract

This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modelling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. We show that narrow regulatory interventions that aim to facilitate comparisons may have adverse consequences for consumer welfare. Finally, we argue that our limited-comparability approach provides a new perspective into the phenomenon of product differentiation.

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Bibliographic Info

Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000001143.

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Date of creation: 21 Dec 2010
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Handle: RePEc:cla:levarc:661465000000001143

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References

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  1. Michele Piccione & Ariel Rubinstein, 2002. "Modelling the economic interaction of agents with diverse abilities to recognise equilibrium patterns," LSE Research Online Documents on Economics 2061, London School of Economics and Political Science, LSE Library.
  2. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
  3. Eliaz, Kfir & Spiegler, Ran, 2006. "Consideration Sets and Competitive Marketing," MPRA Paper 21434, University Library of Munich, Germany, revised 03 Sep 2009.
  4. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  5. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  6. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
  7. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 505-540, May.
  8. Rubinstein, Ariel, 1993. "On Price Recognition and Computational Complexity in a Monopolistic Model," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 473-84, June.
  9. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  10. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
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Cited by:
  1. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 1969. "Competition for Attention," Working Paper 76811, Harvard University OpenScholar.
  2. Wenzel, Tobias, 2014. "Consumer myopia, competition and the incentives to unshroud add-on information," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 89-96.
  3. Crosetto, Paolo & Gaudeul, Alexia, 2012. "Do consumers prefer offers that are easy to compare? An experimental investigation," MPRA Paper 36526, University Library of Munich, Germany.
  4. Bart J. Bronnenberg & Jean-Pierre Dubé & Matthew Gentzkow & Jesse M. Shapiro, 2014. "Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium," NBER Working Papers 20295, National Bureau of Economic Research, Inc.
  5. Wenzel, Tobias, 2013. "Consumer myopia, competition and the incentives to unshroud add-on information," DICE Discussion Papers 126, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  6. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.

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