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A Simple Model of Bertrand Duopoly with Noisy Prices

  • Kaminski, Bogumil
  • Latek, Maciej

We examine a market in which consumers are forced to rely on noisy price signals to select between homogeneous products. The noise originates either from firms' price obfuscation or consumers' bounded information processing capabilities. Standard models and empirical experiments of markets with noise or price obfuscation show that it leads to higher prices detrimental to consumers' welfare. This paper identifies conditions under which an opposite result can be expected. In particular, it shows that a moderate level of noise is beneficial to consumers in a market with a cost leader.

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File URL: https://mpra.ub.uni-muenchen.de/41333/1/MPRA_paper_41333.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41333.

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Date of creation: 14 Sep 2012
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Handle: RePEc:pra:mprapa:41333
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  1. Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
  3. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  4. KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
  5. Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers 35-91, Tel Aviv.
  6. David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
  7. Eric K. Clemons & Il-Horn Hann & Lorin M. Hitt, 2002. "Price Dispersion and Differentiation in Online Travel: An Empirical Investigation," Management Science, INFORMS, vol. 48(4), pages 534-549, April.
  8. Simon P. Anderson & André de Palma, 2005. "Price Dispersion and Consumer Reservation Prices," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 61-91, 03.
  9. Michael Thompson & Steve Thompson, 2006. "Pricing in a market without apparent horizontal differentiation: Evidence from web hosting services," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(7), pages 649-663.
  10. Spector David, 2002. "The Noisy Duopolist," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-19, August.
  11. Luke Garrod, 2008. "Price Transparency and Consumer Naivety in a Competitive Market," Working Papers 07-10, Centre for Competition Policy, University of East Anglia.
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