Browsing versus Studying: A Pro-market Case for Regulation

Paul Heidhues, Johannes Johnen and Botond Koszegi

The Review of Economic Studies, 2021, vol. 88, issue 2, 708-729

Abstract: We identify a competition-policy-based argument for regulating the secondary features of complex or complexly priced products when consumers have limited attention. Limited attention implies that consumers can only “study” a small number of complex products in full, while—by failing to check secondary features—they can superficially “browse” more. Interventions limiting ex post consumer harm through safety regulations, caps on certain fees, or other methods induce consumers to do more or more meaningful browsing, enhancing competition. We show that for a pro-competitive effect to obtain, the regulation must apply to the secondary features, and not to the total price or value of the product. As an auxiliary positive prediction, we establish that because low-value consumers are often more likely to study—and therefore less likely to browse—than high-value consumers, the average price consumers pay can be increasing in the share of low-value consumers. We discuss applications of our insights to health-insurance choice, the European Union’s principle on unfair contract terms, food safety in developing countries, and the shopping behaviour of (and prices paid by) low-income and high-income consumers.

Keywords: Limited attention; Regulation; Search; Hidden prices; Shrouding; D18; D43; D83 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdaa056 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Browsing versus Studying: A Pro-market Case for Regulation (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:2:p:708-729.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().