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The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition

Author

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  • Chris Wilson

    (Department of Economics, University of Oxford)

Abstract

Within a one-shot, duopoly game, we show that firms cannot use false in-store price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson's (1974) conjecture by showing that 'middle-order' monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers thanks to a second, larger effect that improved consumer information and decreases the intensity of price competition.

Suggested Citation

  • Chris Wilson, 2005. "The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition," Working Papers 05-9, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp05-09
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP05-9.pdf
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    Cited by:

    1. Wilson, Chris, 2006. "Markets with Search and Switching Costs," MPRA Paper 131, University Library of Munich, Germany, revised 06 Oct 2006.

    More about this item

    Keywords

    Comparative price; advertising; deception; obfuscation; cheap talk;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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