Excessive Competition for Headline Prices

Roman Inderst and Martin Obradovits ()

No 11284, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: When firms can hide charges and consumers are prone to salient or relative thinking, this may have severe welfare consequences. The ensuring greater competition on headline prices, far from protecting consumers, may distort their choice and induce firms to offer inefficiently low product quality. As more intense competition leads to a larger pass-through of shrouded charges into lower headline prices, which aggravates these problems, competition policy alone cannot correct market outcomes. When competition is however complemented by effective consumer protection, high-quality firms have sufficient incentives to unshroud hidden charges, disciplining firms’ choice of quality and restoring efficiency.

Keywords: Shrouded charges; Hidden fees; Price competition; Shopping; Attention; Salience; Unshrouding (search for similar items in EconPapers)
JEL-codes: D11 D18 D21 D43 D60 L11 L13 L15 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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