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Price Competition with Consumer Confusion

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  • Ioanna Chioveanu
  • Jidong Zhou

Abstract

This paper proposes a model in which identical sellers of a homogeneous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of the equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity, and this may boost industry profits and lower consumer surplus. This paper was accepted by J. Miguel Villas-Boas, marketing.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ioanna Chioveanu & Jidong Zhou, 2011. "Price Competition with Consumer Confusion," Working Papers 11-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:11-19
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    File URL: http://w4.stern.nyu.edu/economics/docs/workingpapers/2011/Zhou-Confusion,%20July2011.pdf
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    References listed on IDEAS

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