Prominence, complexity, and pricing

Ioana Chioveanu

International Journal of Industrial Organization, 2019, vol. 63, issue C, 551-582

Abstract: This paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels. Market-wide complexity results in consumer confusion. Confused consumers are more likely to buy from the prominent firm. In equilibrium, there is dispersion in both prices and price complexity. The nature of equilibrium depends on prominence. Compared to its rival, the prominent firm makes higher profit, associates a smaller price range with lowest complexity, puts lower probability on lowest complexity, and sets a higher average price. However, higher prominence may benefit consumers and, conditional on choosing lowest complexity, the prominent firm’s average price is lower, which is consistent with confused consumers’ bias.

Keywords: Oligopoly markets; Consumer confusion; Prominence; Price complexity; Price dispersion (search for similar items in EconPapers)
JEL-codes: D03 D43 L13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Working Paper: Prominence, Complexity, and Pricing (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:63:y:2019:i:c:p:551-582

DOI: 10.1016/j.ijindorg.2018.12.005

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