Spurious Complexity and Common Standards in Markets for Consumer Goods

Alexia Gaudeul and Robert Sugden

No 07-20, Working Papers from Centre for Competition Policy, University of East Anglia

Abstract: Behavioural and industrial economists have argued that, because of cognitive limitations, consumers are liable to make sub-optimal choices in complex decision problems. Firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. This paper models a countervailing force. Consumers’ choice problems are simplified if competing firms follow common conventions about tariff structures. Because such a ‘common standard’ promotes price competition, a firm’s use of it signals that its products offer value for money. If consumers recognize this effect, there can be a stable equilibrium in which firms use common standards and set competitive prices.

Keywords: decision-making; naïve consumers; savvy consumers; price competition; common standard effect; cognitive limitations. (search for similar items in EconPapers)
JEL-codes: D83 L13 L15 L51 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007-11
New Economics Papers: this item is included in nep-cbe, nep-com, nep-mic and nep-mkt
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http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP07-20.pdf (application/pdf)

Related works:
Journal Article: Spurious Complexity and Common Standards in Markets for Consumer Goods (2012)
Working Paper: Spurious complexity and common standards in markets for consumer goods (2009)
Working Paper: Spurious Complexity and Common Standards in Markets for Consumer Goods (2007)
Working Paper: Spurious Complexity and Common Standards in Markets for Consumer Goods (2007)
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