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Choosing not to compete: Can firms maintain high prices by confusing consumers?

Author

Listed:
  • Paolo Crosetto

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

  • Alexia Gaudeul

    (Georg-August-University of Göttingen = Georg-August-Universität Göttingen)

Abstract

Firms with very similar products often present their products in different ways. This makes it difficult for consumers to find out which product fits their needs best, or which one is the cheapest. Why is there no convergence toward common ways to present products? Is it possible for firms to maintain high prices by confusing consumers? We run a market experiment to investigate those questions. In our market, firms choose how to present their products in addition to choosing their price. We find that firms maintain different ways to present their products and that this allows them to maintain high prices. This behavior is not consistent with competitive behavior, such as when firms adopt best responses to each other, imitate the most successful firm, or learn the best strategy over time. Rather, our results are only consistent with cooperation between firms. Firms cooperate by not imitating the way other firms present their products. Cooperation is maintained by the threat of tough competition if a firm makes its product easy to compare with others. Firms are all the more likely to maintain such cooperation if their products do not actually differ much. This is because in that case, maintaining differences in the presentation of their products is the only way to maintain profits.

Suggested Citation

  • Paolo Crosetto & Alexia Gaudeul, 2017. "Choosing not to compete: Can firms maintain high prices by confusing consumers?," Post-Print hal-01845684, HAL.
    • Handle: RePEc:hal:journl:hal-01845684
    DOI: 10.1111/jems.12212
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    Cited by:

    1. Ernst Fehr & Keyu Wu, 2021. "Obfuscation in competitive markets," ECON - Working Papers 391, Department of Economics - University of Zurich, revised Feb 2023.
    2. Hans‐Theo Normann & Tobias Wenzel, 2019. "Shrouding Add‐On Information: An Experimental Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1705-1727, October.
    3. Bogliacino, Francesco & Charris, Rafael & Codagnone, Cristiano & Folkvord, Frans & Gaskell, George & Gómez, Camilo & Liva, Giovanni & Montealegre, Felipe, 2023. "Less is more: Information overload in the labelling of fish and aquaculture products," Food Policy, Elsevier, vol. 116(C).

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