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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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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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  1. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  2. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
  3. Eliaz, Kfir & Spiegler, Ran, 2006. "Consideration Sets and Competitive Marketing," MPRA Paper 21434, University Library of Munich, Germany, revised 03 Sep 2009.
  4. Michele Piccione & Ariel Rubinstein, 2002. "Modelling the Economic Interaction of Agents with Diverse Abilities to Recognise Equilibrium Patterns," STICERD - Theoretical Economics Paper Series 440, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  6. 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.
  7. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  8. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
  9. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers 401, University of Oxford, Department of Economics.
  10. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, 09.
  11. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
  12. repec:oup:qjecon:v:121:y:2006:i:2:p:505-540 is not listed on IDEAS
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