Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Monday, November 5, 2012

Price Competition and Consumer Confusion

Posted by D. Daniel Sokol

Ioana Chioveanu (Brunel) and Jidong Zhou (NYU) describe Price Competition and 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 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 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/11/price-competition-and-consumer-confusion.html

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