Loyalty, Price Seeking and Protective Consummer Legislation
Consumer legislation such as laws against fraud, uniform standards and mandatory disclosure are imposed on market participants in order to ensure fair trade. One argument behind this legislation is that consumers are boundedly rational. I check the validity of this argument for spatially differentiated firms who decide on price and size. I propose two different ways of modeling bounded rationality: loyalty and different laws, I find that uniform standards need to be combined with mandatory disclosure to alleviate negative effects arising from bounded rationality. Each policy alone may be associated with a reduction in welfare.
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