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The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition

Author

Listed:
  • Chris M. Wilson

    (School of Economics and Centre for Competition Policy, University of East Anglia)

Abstract

Within a one-shot, duopoly game, we show that firms cannot use false instore price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson's (1974) conjecture by showing that 'middle-order' monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers thanks to a second, larger effect that improves consumer information and increases the intensity of price competition.

Suggested Citation

  • Chris M. Wilson, 2005. "The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2005-09, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2005_09
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    More about this item

    Keywords

    Comparative Price Advertising; Deception; Obfuscation; Cheap Talk;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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