IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19562.html

Competitive Markets with Imperfectly Discerning Consumers

Author

Listed:
  • Antler, Yair
  • Spiegler, Ran

Abstract

We develop a market model in which products generate state-dependent potential hidden charges. Firms differ in their ability to realize this potential. Unlike firms, consumers do not observe the state. They try to infer hidden charges from market prices, using idiosyncratic subjective models. We show that an interior competitive equilibrium is uniquely given by what is formally a Bellman equation. Using this representation, we show that relative to rational expectations, add-on charges are lower whereas headline prices and social welfare are higher. Market responses to shocks display patterns that are impossible under rational expectations. For example, although fully revealing, equilibrium prices can vary with consumers' private information.

Suggested Citation

  • Antler, Yair & Spiegler, Ran, 2024. "Competitive Markets with Imperfectly Discerning Consumers," CEPR Discussion Papers 19562, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19562
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19562
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19562. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.