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Price Competition with Consumer Confusion


  • Ioana Chioveanu

    () (Department of Economics and Finance, Brunel University, Uxbridge, Middlesex UB8 3PH, United Kingdom)

  • Jidong Zhou

    () (Department of Economics, Stern School of Business, New York University, New York, New York 10012)


This paper proposes a model in which identical sellers of a homogeneous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of the equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity, and this may boost industry profits and lower consumer surplus. This paper was accepted by J. Miguel Villas-Boas, marketing.

Suggested Citation

  • Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
  • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:11:p:2450-2469

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    References listed on IDEAS

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Gamp, Tobias, 2015. "Search, Differentiated Products, and Obfuscation," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112886, Verein für Socialpolitik / German Economic Association.
    2. Gu, Yiquan & Wenzel, Tobias, 2015. "Consumer confusion, obfuscation, and price regulation," RIEI Working Papers 2015-04, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    3. Wenzel, Tobias & Normann, Hans-Theo, 2015. "Shrouding add-on information: an experimental study," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113149, Verein für Socialpolitik / German Economic Association.
    4. Paolo Crosetto & Alexia Gaudeul, 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Jena Economic Research Papers 2014-026, Friedrich-Schiller-University Jena.
    5. repec:eee:indorg:v:54:y:2017:i:c:p:175-191 is not listed on IDEAS
    6. Ran Spiegler, 2015. "On the Equilibrium Effects of Nudging," The Journal of Legal Studies, University of Chicago Press, vol. 44(2), pages 389-416.
    7. Michael D. Grubb, 2015. "Behavioral Consumers in Industrial Organization," Boston College Working Papers in Economics 879, Boston College Department of Economics.
    8. Asker, John & Bar-Isaac, Heski, 2016. "Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions," CEPR Discussion Papers 11579, C.E.P.R. Discussion Papers.
    9. Gu, Yiquan & Wenzel, Tobias, 2015. "Putting on a tight leash and levelling playing field: An experiment in strategic obfuscation and consumer protection," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 120-128.
    10. Chioveanu, Ioana, 2017. "Prominence, Complexity, and Pricing," MPRA Paper 81078, University Library of Munich, Germany.
    11. Mark Armstrong, 2015. "Search and Ripoff Externalities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 273-302, November.
    12. Bonnet, Céline & Bouamra-Mechemache, Zohra & Klein, Gordon & Richards, Timothy J., 2016. "Strategic Obfuscation and Retail Pricing," TSE Working Papers 16-733, Toulouse School of Economics (TSE).
    13. Kalaycı, Kenan, 2015. "Price complexity and buyer confusion in markets," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 154-168.
    14. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    15. 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.
    16. repec:eee:eecrev:v:101:y:2018:i:c:p:330-353 is not listed on IDEAS
    17. repec:eee:gamebe:v:107:y:2018:i:c:p:298-315 is not listed on IDEAS
    18. Nakajima, Daisuke & Masatlioglu, Yusufcan, 2013. "Choice by iterative search," Theoretical Economics, Econometric Society, vol. 8(3), September.
    19. repec:spr:rvmgts:v:11:y:2017:i:4:d:10.1007_s11846-016-0208-x is not listed on IDEAS
    20. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.
    21. Kenan Kalaycı, 2016. "Confusopoly: competition and obfuscation in markets," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 299-316, June.


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