Friday, May 18, 2012
Posted by D. Daniel Sokol
Ioana Chioveanuy (Brunel University) and Jidong Zhou (NYU Stern School) have posted Price Competition with Consumer Confusion.
ABSTRACT: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). Frame choices a¤ect the comparability of price o¤ers, and may lead to consumer confusion. In the symmetric equilibrium price and price frame dispersion coexist and rms make positive pro ts. Moreover, the nature of equilibrium depends on whether frame di¤erentiation or frame complexity is more confusing, and an increase in the number of rms can raise industry pro ts and harm consumers.