Munich Personal RePEc Archive

Consumer protection and the incentive to become informed

Armstrong, Mark and Vickers, John and Zhou, Jidong (2008): Consumer protection and the incentive to become informed.

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Abstract

We discuss the impact of consumer protection policies on consumer incentives to become informed of the best deals available in the market. In a market with costly consumer search, we find that imposing a cap on suppliers' prices reduces the incentive to engage in search, with the result that prices paid by consumers (both informed and uninformed) may rise. In a related model where consumers have the ability to refuse to receive marketing, we find that this ability softens price competition and can make all consumers worse off.

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