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Price Competition under Limited Comparability

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  • Michele Piccione
  • Ran Spiegler

Abstract

This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modelling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. We show that narrow regulatory interventions that aim to facilitate comparisons may have adverse consequences for consumer welfare. Finally, we argue that our limited-comparability approach provides a new perspective into the phenomenon of product differentiation.
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Suggested Citation

  • Michele Piccione & Ran Spiegler, 2010. "Price Competition under Limited Comparability," Levine's Working Paper Archive 661465000000001143, David K. Levine.
  • Handle: RePEc:cla:levarc:661465000000001143
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    File URL: http://www.dklevine.com/archive/refs4661465000000001143.pdf
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    References listed on IDEAS

    as
    1. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
    2. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    3. Kfir Eliaz & Ran Spiegler, 2011. "Consideration Sets and Competitive Marketing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 235-262.
    4. Michele Piccione & Ariel Rubinstein, 2003. "Modeling the Economic Interaction of Agents With Diverse Abilities to Recognize Equilibrium Patterns," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 212-223, March.
    5. Rubinstein, Ariel, 1993. "On Price Recognition and Computational Complexity in a Monopolistic Model," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 473-484, June.
    6. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    7. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
    8. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
    9. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    10. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    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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