Gaudeul, Alexia (2007): Spurious Complexity and Common Standards in Markets for Consumer Goods.
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Behavioural and industrial economists have argued that, because of cognitive limitations, consumers are liable to make sub-optimal choices in complex decision problems. Firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. This paper models a countervailing force. Consumers' choice problems are simplified if competing firms follow common conventions about tariff structures. Because such a 'common standard' promotes price competition, a firm's use of it signals that its products offer value for money. If consumers recognize this effect, there can be a stable equilibrium in which firms use common standards and set competitive prices.
|Item Type:||MPRA Paper|
|Original Title:||Spurious Complexity and Common Standards in Markets for Consumer Goods|
|Keywords:||decision-making; naïve consumers; savvy consumers; price competition; common standard effect; cognitive limitations|
|Subjects:||L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
|Depositing User:||Alexia Gaudeul|
|Date Deposited:||30. Dec 2009 10:19|
|Last Modified:||02. Mar 2013 05:06|
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