The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition

Chris Wilson ()
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Chris Wilson: Department of Economics, University of Oxford

No 05-9, Working Papers from Centre for Competition Policy, University of East Anglia

Abstract: Within a one-shot, duopoly game, we show that firms cannot use false in-store price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson's (1974) conjecture by showing that 'middle-order' monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers thanks to a second, larger effect that improved consumer information and decreases the intensity of price competition.

Keywords: Comparative price; advertising; deception; obfuscation; cheap talk (search for similar items in EconPapers)
JEL-codes: D43 D83 L10 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-10
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Working Paper: The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition (2005)
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