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Price Competition under Limited Comparability

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Author Info

  • 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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File URL: http://mpra.ub.uni-muenchen.de/21427/
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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. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  2. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
  3. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
  4. Michele Piccione & Ariel Rubinstein, 2003. "Modeling the Economic Interaction of Agents With Diverse Abilities to Recognize Equilibrium Patterns," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 212-223, 03.
  5. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  6. Eliaz, Kfir & Spiegler, Ran, 2009. "Consideration Sets and Competitive Marketing," CEPR Discussion Papers 7456, C.E.P.R. Discussion Papers.
  7. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  8. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
  9. Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers 35-91, Tel Aviv.
  10. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
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Citations

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Cited by:
  1. Wenzel, Tobias, 2013. "Consumer myopia, competition and the incentives to unshroud add-on information," DICE Discussion Papers 126, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Wenzel, Tobias, 2014. "Consumer myopia, competition and the incentives to unshroud add-on information," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 89-96.
  3. 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.
  4. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Competition for Attention," NBER Working Papers 19076, National Bureau of Economic Research, Inc.
  5. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.

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