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Shrouding add-on information: an experimental study

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  • Wenzel, Tobias
  • Normann, Hans-Theo

Abstract

We explore how competition affects firms obfuscation strategies in laboratory experiments. Firms sell a base good and an add-on product. The price of the add-on may be shrouded and, if so, myopic consumers pay too much. Shrouding is an equilibrium but an unshrouding equilibrium coexists. In our experiments, competition matters in that only duopolistic markets are frequently shrouded whereas fourfirm markets are not. With repeated interaction, shrouding rates do not increase. However, the opportunities to shroud facilitate tacit collusion on the base good price for the duopolies: the unshrouding equilibrium serves as a credible punishment if deviations occur.

Suggested Citation

  • Wenzel, Tobias & Normann, Hans-Theo, 2015. "Shrouding add-on information: an experimental study," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113149, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:113149
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    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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