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Price Competition with Consumer Confusion

Ioana Chioveanu () and Jidong Zhou ()

Management Science, 2013, vol. 59, issue 11, 2450-2469

Abstract: This paper proposes a model in which identical sellers of a homogeneous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of the equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity, and this may boost industry profits and lower consumer surplus. This paper was accepted by J. Miguel Villas-Boas, marketing.

Keywords: bounded rationality; framing; oligopoly markets; frame dispersion; price dispersion (search for similar items in EconPapers)
Date: 2013
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http://dx.doi.org/10.1287/mnsc.2013.1716 (application/pdf)

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Working Paper: Price Competition with Consumer Confusion (2011) Downloads
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