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Price Competition under Limited Comparability

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  • Piccione, Michele
  • Spiegler, Ran

Abstract

This paper studies market competition when firms can influence consumers’ ability to compare market alternatives, through their choice of price “formats”. In our model, the ability of a consumer to make a comparison depends on the firms’ format choices. Our main results concern the interaction between firms’ equilibrium price and format decisions and its implications for industry profits and consumer switching rates. In particular, market forces drive down the firms’ profits to a “constrained competitive” benchmark if and only if the comparability structure satisfies a property which we interpret as a form of “frame neutrality”. The same property is necessary for equilibrium behavior to display statistical independence between price and format decisions. We also show that narrow regulatory interventions that aim to facilitate comparisons may have an anticompetitive effect.

Suggested Citation

  • Piccione, Michele & Spiegler, Ran, 2011. "Price Competition under Limited Comparability," Foerder Institute for Economic Research Working Papers 275750, Tel-Aviv University > Foerder Institute for Economic Research.
  • Handle: RePEc:ags:isfiwp:275750
    DOI: 10.22004/ag.econ.275750
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 51-104.
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    More about this item

    Keywords

    Demand and Price Analysis; Financial Economics;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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