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Choosing whether to compete: Price and format competition with consumer confusion

Paolo Crosetto () and Alexia Gaudeul ()

Working Papers from Grenoble Applied Economics Laboratory (GAEL)

Abstract: We run a market experiment where subjects take the role of firms and can choose not only their price but also whether to present comparable offers. Firms are faced with artificial demand whereby consumers make mistakes in assessing the net value of products on the market. Some of those consumers are however able to identify the best of the comparable offers if some offers are comparable, and favor that offer vs. non-comparable offers. We vary the portion of such consumers and the strength of their preferences for the best of the comparable offers. In treatments where firms observe the past decisions of their competitors, firms learn to collude in not presenting comparable offers. This occurs after initial periods with strong competition. Collusion lowers welfare for all consumers and is most frequent when many consumers prefer comparable offers. In treatments where firms cannot monitor competitors however, firms respond to the preference of a portion of consumers for comparable offers. This leads to an improvement in welfare for all consumers.

Keywords: ASYMMETRIC DOMINANCE; ATTRACTION EFFECT; COLLUSION; COMPETITION; CONFUSOPOLY; EXPERIMENT; FRAMING; INDUSTRIAL ORGANIZATION; OBFUSCATION; OLIGOPOLY; PRICE COMPARISON; SHROUDING; SPURIOUS COMPLEXITY; STANDARDIZATION; TRANSPARENCY (search for similar items in EconPapers)
JEL-codes: C92 D18 D43 L13 L15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-exp, nep-ind and nep-mkt
Date: 2014
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Related works:
Working Paper: Choosing whether to compete: Price and format competition with consumer confusion (2016) Downloads
Working Paper: Choosing whether to compete: Price and format competition with consumer confusion (2014) Downloads
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