Consumer confusion, obfuscation, and price regulation

Yiquan Gu and Tobias Wenzel ()
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Tobias Wenzel: Department of Economics, University of Bath

No 2015-04, RIEI Working Papers from Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration

Abstract: This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high-cost firm chooses maximum obfuscation while the lowcost firmchooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that price regulation might be a useful policy in such an environment for two reasons: Introducing a price cap benefits consumers as it i) makes pricing more competitive and ii) reduces firms’ incentives to obfuscate. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low-cost firm.

Keywords: Obfuscation; Consumer Protection; Price Cap (search for similar items in EconPapers)
JEL-codes: D18 L13 L51 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-05-24
New Economics Papers: this item is included in nep-com and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Consumer confusion, obfuscation and price regulation (2017)
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