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Price Competition and Consumer Confusion

Ioana Chioveanu () and Jidong Zhou ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). We model price framing by assuming that firms’ frame choices affect the comparability of their price offers: consumers may fail to compare prices due to frame differentiation, and due to frame complexity. In the symmetric equilibrium the firms randomize over both price frames and prices, and make positive profits. This result is consistent with the observed coexistence of price and price frame dispersion in the market. We also show that (i) the nature of equilibrium depends on which source of consumer confusion dominates, and (ii) an increase in the number of firms can increase industry profits and harm consumers.

Keywords: bounded rationality; framing; frame dispersion; incomplete preferences; price competition; price dispersion (search for similar items in EconPapers)
JEL-codes: L13 D43 (search for similar items in EconPapers)
Date: 2009-09-01
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (10) Track citations by RSS feed

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Related works:
Working Paper: Price Competition and Consumer Confusion (2012) Downloads
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