Choosing whether to compete: Price and format competition with consumer confusion

Paolo Crosetto and Alexia Gaudeul

No 2014-026, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We run a market experiment where firms can choose not only their price but also whether to present comparable offers. They are faced with artificial demand from consumers who make mistakes when assessing the net value of products on the market. If some offers are comparable however, some consumers favor the best of the comparable offers vs. non-comparable offers. We vary the number of such consumers as well as the strength of their preferences for the best of the comparable offers. In treatments where firms observe the past decisions of their competitors, firms learn not to present comparable offers especially when many consumers prefer comparable offers. This occurs after initial periods with strong competition and leads to lower welfare for all consumers. In treatments where firms cannot monitor the competition, firms end up having to present comparable offers, which leads to an improvement in welfare for all consumers.

Keywords: asymmetric dominance; attraction effect; collusion; competition; confusopoly; experiment; framing; industrial organization; obfuscation; oligopoly; price comparison; shrouding; spurious complexity; standardization; transparency (search for similar items in EconPapers)
JEL-codes: C92 D18 D43 L13 L15 (search for similar items in EconPapers)
Date: 2014-11-04
New Economics Papers: this item is included in nep-com, nep-exp and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Choosing whether to compete: Price and format competition with consumer confusion (2016)
Working Paper: Choosing whether to compete: Price and format competition with consumer confusion (2014)
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