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Price competition with consumer confusion

Chioveanu, I.; Zhou, J.; (2009) Price competition with consumer confusion. (ELSE Working Papers 339). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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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). We model price framing by assuming that firms’ frame choices affect the comparability of their price offers: consumers may fail to compare prices due to frame differentiation, and due to frame complexity. In the symmetric equilibrium the firms randomize over both price frames and prices, and make positive profits. This result is consistent with the observed coexistence of price and price frame dispersion in the market. We also show that (i) the nature of equilibrium depends on which source of consumer confusion dominates, and (ii) an increase in the number of firms can increase industry profits and harm consumers.

Type: Working / discussion paper
Title: Price competition with consumer confusion
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php#2009
Language: English
Keywords: Bounded rationality, framing, frame dispersion, incomplete preferences, price competition, price dispersion
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/18251
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