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Competition and Obfuscation

Spiegler, R; (2016) Competition and Obfuscation. Annual Review of Economics , 8 Green open access

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Consumers often find it hard to make correct value comparisons between market alternatives. Part of this "choice complexity" is the result of deliberate obfuscation by firms. This review synthesizes a theoretical literature that analyzes the role of choice complexity in otherwise-competitive markets. I identify two general classes of models in the literature: (a) firms’ obfuscation strategy is an independent "framing device" that affects the probability with which consumers make correct comparisons; (b) market alternatives are multi-attribute objects, and obfuscation is captured by "lopsided" location in attribute space, lowering the probability of being dominated by another market alternative. I address the following key questions: What determines the amount of choice complexity in market equilibrium? What is the relation between choice complexity and payoff-relevant aspects of the market outcome? What is the role of consumer protection measures? The models surveyed in this review suggest that equilibrium obfuscation and choice complexity increase in response to intensified competition, mitigating the positive effect of competition on consumer welfare. However, equilibrium effects can also attenuate the positive welfare effects of regulatory interventions.

Type: Article
Title: Competition and Obfuscation
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.annualreviews.org/doi/abs/10.1146/annur...
Language: English
Additional information: Posted with permission from the Annual Review of Economics, Volume 8, copyright © 2016 by Annual Reviews, http://www.annualreviews.org.
URI: https://discovery.ucl.ac.uk/id/eprint/1503849
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