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Consumer confusion, obfuscation and price regulation

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  • Yiquan Gu
  • Tobias Wenzel

Abstract

This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high-cost firm chooses maximum obfuscation while the lowcost firmchooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that price regulation might be a useful policy in such an environment for two reasons: Introducing a price cap benefits consumers as it i) makes pricing more competitive and ii) reduces firms’ incentives to obfuscate. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low-cost firm.
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Suggested Citation

  • Yiquan Gu & Tobias Wenzel, 2017. "Consumer confusion, obfuscation and price regulation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(2), pages 169-190, May.
  • Handle: RePEc:bla:scotjp:v:64:y:2017:i:2:p:169-190
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    File URL: http://hdl.handle.net/10.1111/sjpe.12121
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    3. Bernard Hoekman & Charles Sabel, 2017. "Trade Agreements, Regulatory Sovereignty and Democratic Legitimacy," RSCAS Working Papers 2017/36, European University Institute.

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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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