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Price Competition under Limited Comparability

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  • Piccione, Michele
  • Spiegler, Ran

Abstract

This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modelling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. We show that narrow regulatory interventions that aim to facilitate comparisons may have adverse consequences for consumer welfare. Finally, we argue that our limited-comparability approach provides a new perspective into the phenomenon of product differentiation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21427.

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Date of creation: 04 May 2009
Date of revision: 16 Oct 2009
Handle: RePEc:pra:mprapa:21427

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Related research

Keywords: price competition; industrial organization; limited comparability; bounded rationality; framing; consumer protection; product differentiation; complexity;

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References

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  1. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, Econometric Society, vol. 3(4), December.
  2. Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers, Tel Aviv 35-91, Tel Aviv.
  3. Michele Piccione & Ariel Rubinstein, 2002. "Modelling the economic interaction of agents with diverse abilities to recognise equilibrium patterns," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2061, London School of Economics and Political Science, LSE Library.
  4. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, American Economic Association, vol. 70(4), pages 651-59, September.
  5. Eliaz, Kfir & Spiegler, Ran, 2006. "Consideration Sets and Competitive Marketing," MPRA Paper 21434, University Library of Munich, Germany, revised 03 Sep 2009.
  6. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
  7. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  8. 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.
  9. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
  10. 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.
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Citations

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Cited by:
  1. 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.
  2. Haucap, Justus & Heimeshoff, Ulrich & Lange, Mirjam R. J., 2014. "The impact of tariff diversity on broadband diffusion: An empirical analysis," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 156, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Bart J. Bronnenberg & Jean-Pierre Dubé & Matthew Gentzkow & Jesse M. Shapiro, 2014. "Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium," NBER Working Papers 20295, National Bureau of Economic Research, Inc.
  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. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers, University of Copenhagen. Department of Economics 14-15, University of Copenhagen. Department of Economics.
  6. Mark Armstrong, 2014. "Search and Ripoff Externalities," Economics Series Working Papers, University of Oxford, Department of Economics 715, University of Oxford, Department of Economics.
  7. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Competition for Attention," NBER Working Papers 19076, National Bureau of Economic Research, Inc.
  8. Wenzel, Tobias, 2014. "Consumer myopia, competition and the incentives to unshroud add-on information," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 98(C), pages 89-96.

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