Competition over Agents with Boundedly Rational Expectations
AbstractI study a market model in which profit-maximizing firms compete in multi-dimensional pricing strategies over a consumer, who is limited in his ability to grasp such complicated objects and therefore uses a sampling procedure to evaluate them. Firms respond to increased competition with an increased effort to obfuscate, rather than with more competitive pricing. As a result, consumer welfare is not enhanced and may even deteriorate. Specifically, when firms control both the price and the quality of each dimension, and there are diminishing returns to quality, increased competition implies an efficiency loss which is entirely borne by consumers.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000535.
Date of creation: 21 Nov 2005
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Other versions of this item:
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
- C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-COM-2004-09-30 (Industrial Competition)
- NEP-EVO-2004-09-30 (Evolutionary Economics)
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