Obfuscation of Quality Information for Dual Bounded Rational Consumers

Kumagae Keiki () and Hosoe Moriki ()
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Kumagae Keiki: Kumamoto Gakuen University, 2-5-1 Oe, Chuo-ku, Kumamoto, 862-8680, Japan
Hosoe Moriki: Kumamoto Gakuen University, 2-5-1 Oe, Chuo-ku, Kumamoto, 862-8680, Japan

Asian Journal of Law and Economics, 2023, vol. 14, issue 3, 207-224

Abstract: We study the incentives for firms’ obfuscation strategies and their impact on social welfare in a market with boundedly rational consumers. We assume that firms obfuscate product information, which can prevent consumers from acquiring type information. Some naive consumers in the markets exhibited limited comprehension and default bias toward higher-quality products. We show that firms chose obfuscation in all cases except those in which consumers have a strong degree of bounded rationality and more pessimistically evaluate themselves as the naive type. This means that for firms, the benefits from second-degree price discrimination are limited and obfuscation may be a more important strategy than informing. We also find that, under certain conditions, obfuscation may result in socially desirable product allocation. This result indicate that careful consideration needs to be given to policies that reduce the incentive for firms to obfuscate, such as increasing the proportion of sophisticated consumers.

Keywords: bounded rationality; obfuscation; price discrimination; product complexity (search for similar items in EconPapers)
JEL-codes: D K L (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/ajle-2023-0051

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