Prominence, Complexity, and Pricing

Chioveanu, Ioana (2017): Prominence, Complexity, and Pricing.

Abstract

This paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels. Complexity limits competing offers' comparability and results in consumer confusion. Confused consumers are more likely to buy from the prominent firm. In equilibrium there is dispersion in both prices and price complexity. The nature of equilibrium depends on prominence. Compared to its rival, the prominent firm makes higher profit, associates a smaller price range with lowest complexity, puts lower probability on lowest complexity, and sets a higher average price. However, higher prominence may benefit consumers and, conditional on choosing lowest complexity, the prominent firm's average price is lower, which is consistent with confused consumers' bias.

• Item Type: MPRA Paper
• Language: English
• Keywords: oligopoly markets, consumer confusion, prominence, price complexity, price dispersion
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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