IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/87466.html
   My bibliography  Save this paper

A more general model of price complexity

Author

Listed:
  • Chioveanu, Ioana

Abstract

This paper considers a model of competition in prices and price complexity levels, which accommodates concave and convex confusion technologies. In symmetric equilibrium, the probability of using high complexity increases in the number of firms. In the limit, as the number of competitors goes to infinity, firms use high complexity almost surely but the impact on consumer welfare depends on the characteristics of the confusion technology. Specifically, industry profits converge to the highest level with concave confusion technologies and to the lowest level when with convex confusion technologies. An improvement in consumer sophistication increases consumer welfare but does not reduce market complexity.

Suggested Citation

  • Chioveanu, Ioana, 2018. "A more general model of price complexity," MPRA Paper 87466, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:87466
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/87466/1/MPRA_paper_87466.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    2. Ran Spiegler, 2016. "Choice Complexity and Market Competition," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 1-25, October.
    3. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
    4. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    5. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
    6. Mark Armstrong, 2008. "Interactions between Competition and Consumer Policy," CPI Journal, Competition Policy International, vol. 4.
    7. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 97-135.
    8. Nicolas de Roos, 2018. "Collusion with limited product comparability," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 481-503, September.
    9. Yiquan Gu & Tobias Wenzel, 2014. "Strategic Obfuscation and Consumer Protection Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 632-660, December.
    10. Chioveanu, Ioana, 2019. "Prominence, complexity, and pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 551-582.
    11. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    12. Susan E. Woodward & Robert E. Hall, 2012. "Diagnosing Consumer Confusion and Sub-optimal Shopping Effort: Theory and Mortgage-Market Evidence," American Economic Review, American Economic Association, vol. 102(7), pages 3249-3276, December.
    13. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    14. Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 192-226, November.
    15. KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
    16. Chioveanu Ioana, 2019. "An Asymmetric Duopoly Model of Price Framing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-7, June.
    17. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-1579, September.
    18. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
    19. Greg Taylor, 2017. "Raising search costs to deter window shopping can increase profits and welfare," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 387-408, May.
    20. Kalaycı, Kenan, 2015. "Price complexity and buyer confusion in markets," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 154-168.
    21. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, September.
    22. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chioveanu, Ioana, 2019. "Prominence, complexity, and pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 551-582.
    2. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    3. Timothy J. Richards & Gordon J. Klein & Celine Bonnet & Zohra Bouamra-Mechemache, 2020. "Strategic Obfuscation and Retail Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(4), pages 859-889, December.
    4. Janssen, Aljoscha & Kasinger, Johannes, 2021. "Obfuscation and rational inattention in digitalized markets," SAFE Working Paper Series 306, Leibniz Institute for Financial Research SAFE.
    5. Janssen, Aljoscha & Kasinger, Johannes, 2021. "Obfuscation and Rational Inattention in Digitalized Markets," Working Paper Series 1379, Research Institute of Industrial Economics.
    6. Yiquan Gu & Tobias Wenzel, 2017. "Consumer confusion, obfuscation and price regulation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(2), pages 169-190, May.
    7. Gu, Yiquan & Wenzel, Tobias, 2020. "Curbing obfuscation: Empower consumers or regulate firms?," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    8. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
    9. Paolo Crosetto & Alexia Gaudeul, 2017. "Choosing not to compete: Can firms maintain high prices by confusing consumers?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 897-922, December.
    10. Foros, Øystein & Nguyen-Ones, Mai & Frode, Steen, 2017. "The Effects of a Day Off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing," Discussion Paper Series in Economics 1/2018, Norwegian School of Economics, Department of Economics.
    11. Hämäläinen, Saara, 2018. "Competitive search obfuscation," Journal of Economic Dynamics and Control, Elsevier, vol. 97(C), pages 38-63.
    12. Bruce I. Carlin & Florian Ederer, 2019. "Search Fatigue," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(3), pages 485-508, May.
    13. Kenan Kalaycı, 2016. "Confusopoly: competition and obfuscation in markets," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 299-316, June.
    14. Yiquan Gu & Tobias Wenzel, 2014. "Strategic Obfuscation and Consumer Protection Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 632-660, December.
    15. Rasch, Alexander & Thöne, Miriam & Wenzel, Tobias, 2020. "Drip pricing and its regulation: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 353-370.
    16. Gu, Yiquan & Wenzel, Tobias, 2015. "Putting on a tight leash and levelling playing field: An experiment in strategic obfuscation and consumer protection," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 120-128.
    17. Paolo Crosetto & Alexia Gaudeul, 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Jena Economic Research Papers 2014-026, Friedrich-Schiller-University Jena.
    18. Nicolas de Roos, 2018. "Collusion with limited product comparability," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 481-503, September.
    19. Samir Mamadehussene, 2020. "The Interplay Between Obfuscation and Prominence in Price Comparison Platforms," Management Science, INFORMS, vol. 66(10), pages 4843-4862, October.
    20. Papi, Mauro, 2018. "Price competition with satisficing consumers," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 252-272.

    More about this item

    Keywords

    price complexity; confusion technology; oligopoly markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:87466. 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). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.