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Consumer protection and the incentive to become informed

  • Armstrong, Mark
  • Vickers, John
  • Zhou, Jidong

We discuss the impact of consumer protection policies on consumer incentives to become informed of the best deals available in the market. In a market with costly consumer search, we find that imposing a cap on suppliers' prices reduces the incentive to engage in search, with the result that prices paid by consumers (both informed and uninformed) may rise. In a related model where consumers have the ability to refuse to receive marketing, we find that this ability softens price competition and can make all consumers worse off.

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File URL: http://mpra.ub.uni-muenchen.de/9898/1/MPRA_paper_9898.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9898.

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Date of creation: Aug 2008
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Handle: RePEc:pra:mprapa:9898
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  1. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  2. Mark Armstrong, 2008. "Interactions between Competition and Consumer Policy," CPI Journal, Competition Policy International, vol. 4.
  3. Simon P. Anderson & André de Palma, 2007. "Information Congestion: open access in a two-sided market," THEMA Working Papers 2007-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Fershtman, C. & Fishman, A., 1991. "The "Perverse" Effects of Wage and Price Controls in Search Markets," Papers 11-91, Tel Aviv.
  5. Il-Horn Hann & Kai-Lung Hui & Sang-Yong T. Lee & Ivan P. L. Png, 2008. "Consumer Privacy and Marketing Avoidance: A Static Model," Management Science, INFORMS, vol. 54(6), pages 1094-1103, June.
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