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Consumer confusion, obfuscation, and price regulation

Author

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  • Gu, Yiquan

    () (Management School, University of Liverpool)

  • Wenzel, Tobias

    () (Department of Economics, University of Bath)

Abstract

This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high-cost firm chooses maximum obfuscation while the lowcost firmchooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that price regulation might be a useful policy in such an environment for two reasons: Introducing a price cap benefits consumers as it i) makes pricing more competitive and ii) reduces firms’ incentives to obfuscate. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low-cost firm.

Suggested Citation

  • Gu, Yiquan & Wenzel, Tobias, 2015. "Consumer confusion, obfuscation, and price regulation," RIEI Working Papers 2015-04, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
  • Handle: RePEc:xjt:rieiwp:2015-04
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    References listed on IDEAS

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    More about this item

    Keywords

    Obfuscation; Consumer Protection; Price Cap;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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