Preferences, confusion and competition

Andreas Hefti, Shuo Liu and Armin Schmutzler

No 344, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: Do firms seek to make the market transparent,or do they confuse the consumers in their product perceptions? We show that the answer to this question depends decisively on preference heterogeneity. Contrary to the well-studied case of homogeneous goods, confusion is not necessarily an equilibrium in markets with differentiated goods. In particular, if the taste distribution is polarized, so that indifferent consumers are relatively rare, firms strive to fully educate consumers. By contrast, if the taste distribution features a concentration of indecisive consumers, confusion becomes part of the equilibrium strategies. The adverse welfare consequences of confusion can be more severe than with homogeneous goods, as consumers may not only pay higher prices, but also choose a dominated option, or inefficiently refrain from buying. Qualitatively similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences.

Keywords: Obfuscation; consumerconfusion; differentiated products; price competition; polarized/indecisive preferences; political competition (search for similar items in EconPapers)
JEL-codes: D43 L13 M30 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-com, nep-gen, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Preferences, Confusion and Competition (2022)
Working Paper: Preferences, Confusion and Competition (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:344

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