Browsing versus Studying: A Pro-market Case for Regulation

Paul Heidhues, Johannes Johnen and Botond Koszegi

No 3146, LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

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 (search for similar items in EconPapers)
JEL-codes: D18 D43 D83 (search for similar items in EconPapers)
Pages: 22
Date: 2021-03-01
Note: In: The Review of Economic Studies, 2021, vol. 88(2), p. 708–729
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvrp:3146

DOI: 10.1093/restud/rdaa056

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