The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition
AbstractWithin a one-shot, duopoly game, we show that firms cannot use false in- store price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson’s (1974) conjecture by showing that ‘middle-order’ monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers due to a second, larger effect that improves consumer information and increases the intensity of price competition.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0510007.
Length: 24 pages
Date of creation: 24 Oct 2005
Date of revision:
Note: Type of Document - pdf; pages: 24
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Web page: http://184.108.40.206
Comparative Price Advertising; Deception; Obfuscation; Cheap Talk;
Other versions of this item:
- Chris Wilson, 2005. "The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition," Working Papers 05-9, Centre for Competition Policy, University of East Anglia.
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-COM-2005-10-29 (Industrial Competition)
- NEP-MIC-2005-10-29 (Microeconomics)
- NEP-MKT-2005-10-29 (Marketing)
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- Wilson, Chris, 2006. "Markets with Search and Switching Costs," MPRA Paper 131, University Library of Munich, Germany, revised 06 Oct 2006.
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