Spurious complexity and common standards in markets for consumer goods
AbstractIt has been argued that cognitively constrained consumers respond sub-optimally to complex decision problems, and that firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. We model a countervailing force. Restricting one's choices to the most easily comparable options is a psychologically well-attested heuristic. Consumers who use this heuristic favour firms that follow common conventions about tariff structures. Because a 'common standard' promotes price competition, a firm's use of it signals that it offers value for money, validating the heuristic. This allows an equilibrium in which firms use common standards and set competitive prices.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-084.
Date of creation: 15 Oct 2009
Date of revision:
common standard; spurious complexity; cognitive limitations;
Other versions of this item:
- Alexia Gaudeul & Robert Sugden, 2012. "Spurious Complexity and Common Standards in Markets for Consumer Goods," Economica, London School of Economics and Political Science, vol. 79(314), pages 209-225, 04.
- 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, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," Working Papers 07-20, Centre for Competition Policy, University of East Anglia.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-CBE-2009-10-24 (Cognitive & Behavioural Economics)
- NEP-COM-2009-10-24 (Industrial Competition)
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