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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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.
- 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.
- Gaudeul, Alexia, 2007. "Spurious Complexity and Common Standards in Markets for Consumer Goods," MPRA Paper 19647, University Library of Munich, Germany.
- 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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Spiegler, R., 2006.
"Competition over agents with boundedly rational expectations,"
Open Access publications from University College London
http://discovery.ucl.ac.u, University College London.
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
- Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
- Chris M. Wilson & Catherine Waddams Price, 2010.
"Do consumers switch to the best supplier?,"
Oxford Economic Papers,
Oxford University Press, vol. 62(4), pages 647-668, October.
- Cass R. Sunstein & Richard H. Thaler, 2003.
"Libertarian paternalism is not an oxymoron,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston, issue Jun.
- Gabaix, Xavier & Laibson, David I., 2006.
"Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,"
4554333, Harvard University Department of Economics.
- 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.
- Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc.
- Robert Sugden, 2004. "The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences," American Economic Review, American Economic Association, vol. 94(4), pages 1014-1033, September.
- Glenn Ellison, 2003.
"A Model of Add-on Pricing,"
NBER Working Papers
9721, National Bureau of Economic Research, Inc.
- Paolo Crosetto & Alexia Gaudeul, 2011.
"Do consumers prefer offers that are easy to compare? An experimental investigation,"
Jena Economic Research Papers
2011-044, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- 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.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche).
If references are entirely missing, you can add them using this form.