A Simple Model of Bertrand Duopoly with Noisy Prices
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.
|Date of creation:||14 Sep 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Glenn Ellison & Alexander Wolitzky, 2012.
"A search cost model of obfuscation,"
RAND Journal of Economics,
RAND Corporation, vol. 43(3), pages 417-441, 09.
- Luke Garrod, 2008. "Price Transparency and Consumer Naivety in a Competitive Market," Working Papers 07-10, Centre for Competition Policy, University of East Anglia.
- 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.
- 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.
- Ran Spiegler, 2005.
"Competition over Agents with Boundedly Rational Expectations,"
122247000000000535, UCLA Department of Economics.
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
- 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.
- KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
- 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.
- Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers 35-91, Tel Aviv.
- David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
- Spector David, 2002. "The Noisy Duopolist," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-19, August.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:41333. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.