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.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
17340.
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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