Dynamic competition in deceptive markets

Johannes Johnen

RAND Journal of Economics, 2020, vol. 51, issue 2, 375-401

Abstract: In many deceptive markets, firms design contracts to exploit mistakes of naive consumers. These contracts also attract less‐profitable sophisticated consumers. I study such markets when firms compete repeatedly. By observing their customers' usage patterns, firms acquire private information about their level of naiveté. First, I find that private information on naiveté mitigates competition and is of great value even with homogeneous products. Second, competition between initially symmetrically informed firms is mitigated when firms can educate naifs about mistakes. In an analogous setting without naifs, the second result does not occur; the first result occurs when firms cannot disclose fees.

Date: 2020
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Citations: View citations in EconPapers (18)

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https://doi.org/10.1111/1756-2171.12318

Related works:
Working Paper: Dynamic Competition in Deceptive Markets (2020)
Working Paper: Dynamic competition in deceptive markets (2017)
Working Paper: Dynamic Competition in Deceptive Markets
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