Advanced Search
MyIDEAS: Login to save this paper or follow this series

Price Competition and Consumer Confusion

Contents:

Author Info

  • Chioveanu, Ioana
  • Zhou, Jidong

Abstract

This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). We model price framing by assuming that firms’ frame choices affect the comparability of their price offers: consumers may fail to compare prices due to frame differentiation, and due to frame complexity. In the symmetric equilibrium the firms randomize over both price frames and prices, and make positive profits. This result is consistent with the observed coexistence of price and price frame dispersion in the market. We also show that (i) the nature of equilibrium depends on which source of consumer confusion dominates, and (ii) an increase in the number of firms can increase industry profits and harm consumers.

Download Info

If 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.
File URL: http://mpra.ub.uni-muenchen.de/17340/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17340.

as in new window
Length:
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:pra:mprapa:17340

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: bounded rationality; framing; frame dispersion; incomplete preferences; price competition; price dispersion;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Tanjim Hossain & John Morgan, 2006. "...plus shipping and handling: Revenue (non) equivalence in field experiments on ebay," Natural Field Experiments, The Field Experiments Website 00270, The Field Experiments Website.
  2. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
  3. Marianne Bertrand & Sendhil Mullainathan & Dean Karlan & Eldar Shafir & Jonathan Zinman, 2009. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment," Working Papers, Economic Growth Center, Yale University 968, Economic Growth Center, Yale University.
  4. Eliaz, Kfir & Ok, Efe A., 2006. "Indifference or indecisiveness? Choice-theoretic foundations of incomplete preferences," Games and Economic Behavior, Elsevier, Elsevier, vol. 56(1), pages 61-86, July.
  5. Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc.
  6. Mark Armstrong & Yongmin Chen, 2009. "Inattentive Consumers and Product Quality," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(2-3), pages 411-422, 04-05.
  7. Spiegler, Ran, 2011. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195398717, October.
  8. Jennifer Brown & Tanjim Hossain & John Morgan, 2010. "Shrouded Attributes and Information Suppression: Evidence from the Field," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(2), pages 859-876, May.
  9. Baye, Michael R. & Kovenock, Dan & de Vries, Casper G., 1992. "It takes two to tango: Equilibria in a model of sales," Games and Economic Behavior, Elsevier, Elsevier, vol. 4(4), pages 493-510, October.
  10. James J Choi & David Laibson & Brigitte C Madrian, 2008. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Levine's Working Paper Archive 122247000000002014, David K. Levine.
  11. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  12. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  13. KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 29(1), pages 14-22, January.
  14. 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.
  15. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
  16. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers, University of Oxford, Department of Economics 401, University of Oxford, Department of Economics.
  17. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  18. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 700-712, September.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How to make a profit through price obfuscation
    by Economic Logician in Economic Logic on 2012-10-05 14:13:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Paolo Crosetto & Alexia Gaudeul, 2011. "Do consumers prefer offers that are easy to compare? An experimental investigation," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2011-044, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Steffen Huck & Jidong Zhou, 2011. "Consumer Behavioural Biases in Competition: A Survey," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 11-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Huck, Steffen & Schmid, Julia & Wallace, Brian, 2013. "Price framing," Discussion Papers, Research Unit: Economics of Change, Social Science Research Center Berlin (WZB) SP II 2013-314, Social Science Research Center Berlin (WZB).
  4. Wenzel, Tobias, 2013. "Consumer myopia, competition and the incentives to unshroud add-on information," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 126, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  5. Natalia Shestakova, 2010. "Overcoming Consumer Biases in the Choice of Pricing Schemes: A Lab Experiment," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp418, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  6. Nakajima, Daisuke & Masatlioglu, Yusufcan, 2013. "Choice by iterative search," Theoretical Economics, Econometric Society, Econometric Society, vol. 8(3), September.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:17340. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.