The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition

Chris Wilson
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Chris Wilson: School of Economics and Centre for Competition Policy, University of East Anglia

No 2005-09, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: Within a one-shot, duopoly game, we show that firms cannot use false instore price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson's (1974) conjecture by showing that 'middle-order' monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers thanks to a second, larger effect that improves consumer information and increases the intensity of price competition.

Keywords: Comparative Price Advertising; Deception; Obfuscation; Cheap Talk (search for similar items in EconPapers)
JEL-codes: D43 D83 L10 (search for similar items in EconPapers)
Date: 2005-10-02
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Persistent link: https://EconPapers.repec.org/RePEc:uea:ueaccp:2005_09

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