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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: http://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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  1. 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.
  2. 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.
  3. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 505-540, May.
  4. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  5. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers 401, University of Oxford, Department of Economics.
  6. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, 09.
  7. Kfir Eliaz & Ran Spiegler, 2011. "Consideration Sets and Competitive Marketing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 235-262.
  8. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  9. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
  10. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
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