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Price Competition and Consumer Confusion

  • Ioana Chioveanu

    ()

  • Jidong Zhou

    ()

This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers, and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity and this may boost industry profits and lower consumer surplus.

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File URL: http://www.brunel.ac.uk/__data/assets/pdf_file/0003/342777/CEDI_12-08.pdf
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Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 12-08.

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Length: 37 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:edb:cedidp:12-08
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