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Consumer protection and the incentive to become informed

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Author Info
Armstrong, Mark
Vickers, John
Zhou, Jidong

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Abstract

We discuss the impact of consumer protection policies on consumer incentives to become informed of the best deals available in the market. In a market with costly consumer search, we find that imposing a cap on suppliers' prices reduces the incentive to engage in search, with the result that prices paid by consumers (both informed and uninformed) may rise. In a related model where consumers have the ability to refuse to receive marketing, we find that this ability softens price competition and can make all consumers worse off.

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File URL: http://mpra.ub.uni-muenchen.de/9898/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9898.

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Date of creation: Aug 2008
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Handle: RePEc:pra:mprapa:9898

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Related research
Keywords: Consumer protection; search; price caps; advertising;

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Find related papers by JEL classification:
D18 - Microeconomics - - Household Behavior - - - Consumer Protection
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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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.:
  1. Armstrong, Mark, 2008. "Interactions between competition and consumer policy," MPRA Paper 7258, University Library of Munich, Germany. [Downloadable!]
  2. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July. [Downloadable!] (restricted)
  3. Fershtman, Chaim & Fishman, Arthur, 1994. "The 'perverse' effects of wage and price controls in search markets," European Economic Review, Elsevier, vol. 38(5), pages 1099-1112, May. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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