Spurious complexity and common standards in markets for consumer goods

Alexia Gaudeul and Robert Sugden

No 2009-084, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: It has been argued that cognitively constrained consumers respond sub-optimally to complex decision problems, and that firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. We model a countervailing force. Restricting one's choices to the most easily comparable options is a psychologically well-attested heuristic. Consumers who use this heuristic favour firms that follow common conventions about tariff structures. Because a 'common standard' promotes price competition, a firm's use of it signals that it offers value for money, validating the heuristic. This allows an equilibrium in which firms use common standards and set competitive prices.

Keywords: common standard; spurious complexity; cognitive limitations (search for similar items in EconPapers)
JEL-codes: D83 L13 L51 (search for similar items in EconPapers)
Date: 2009-10-15
New Economics Papers: this item is included in nep-cbe and nep-com
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Citations: View citations in EconPapers (4)

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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 (2007)
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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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2009-084

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