Strategic Confusopoly: Evidence from the UK Mobile Telecommunications Market

Can entire markets strategically confuse consumers to raise market prices? Using a detailed data set covering virtually all mobile phone tariffs and their handsets in the United Kingdom between January 2010 and September 2012, we study the evolution of quality-adjusted prices and find that they increased until December 2010, even though the industry was mature, technologically homogeneous, and competitive. Upon exploring the role of several salient factors, such as differentiation and product proliferation by firms that may have affected this evolution, we argue that the primary driver is the implementation of obfuscation strategies by firms. The observed price increase is significantly correlated with the rate at which operators implemented dominated tariffs (i.e., tariffs for which there is a cheaper alternative from the same operator), indicating that firms use obfuscation strategies to reduce product transparency, thereby elevating overall prices. Importantly, the presence of dominated tariffs raises not only the prices of these contracts but also, those of efficient ones, distinguishing our findings from a behavioral price discrimination strategy that would only affect inattentive consumers. Our exploratory study is one of the first to offer suggestive evidence of obfuscation as an industry-wide supply-side phenomenon.