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Price Competition under Limited Comparability

  • Piccione, Michele
  • Spiegler, Ran

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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File URL: https://mpra.ub.uni-muenchen.de/21427/1/MPRA_paper_21427.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21427.

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Date of creation: 04 May 2009
Date of revision: 16 Oct 2009
Handle: RePEc:pra:mprapa:21427
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Web page: https://mpra.ub.uni-muenchen.de

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  1. Eliaz, Kfir & Spiegler, Ran, 2009. "Consideration Sets and Competitive Marketing," CEPR Discussion Papers 7456, C.E.P.R. Discussion Papers.
  2. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
  3. Michele Piccione & Ariel Rubinstein, 2002. "Modelling the economic interaction of agents with diverse abilities to recognise equilibrium patterns," LSE Research Online Documents on Economics 2061, London School of Economics and Political Science, LSE Library.
  4. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  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 473-84, June.
  6. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  7. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
  8. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  9. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
  10. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers 401, University of Oxford, Department of Economics.
  11. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
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