IDEAS home Printed from https://ideas.repec.org/p/zur/econwp/344.html
   My bibliography  Save this paper

Preferences, confusion and competition

Author

Listed:
  • Andreas Hefti
  • Shuo Liu
  • Armin Schmutzler

Abstract

Do firms seek to make the market transparent,or do they confuse the consumers in their product perceptions? We show that the answer to this question depends decisively on preference heterogeneity. Contrary to the well-studied case of homogeneous goods, confusion is not necessarily an equilibrium in markets with differentiated goods. In particular, if the taste distribution is polarized, so that indifferent consumers are relatively rare, firms strive to fully educate consumers. By contrast, if the taste distribution features a concentration of indecisive consumers, confusion becomes part of the equilibrium strategies. The adverse welfare consequences of confusion can be more severe than with homogeneous goods, as consumers may not only pay higher prices, but also choose a dominated option, or inefficiently refrain from buying. Qualitatively similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences.

Suggested Citation

  • Andreas Hefti & Shuo Liu & Armin Schmutzler, 2020. "Preferences, confusion and competition," ECON - Working Papers 344, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:344
    as

    Download full text from publisher

    File URL: http://www.econ.uzh.ch/static/wp/econwp344.pdf
    Download Restriction: no

    Other versions of this item:

    More about this item

    Keywords

    Obfuscation; consumerconfusion; differentiated products; price competition; polarized/indecisive preferences; political competition;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zur:econwp:344. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser). General contact details of provider: http://edirc.repec.org/data/seizhch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.