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A more general model of price complexity

Chioveanu, Ioana (2018): A more general model of price complexity.

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Abstract

This paper considers a model of competition in prices and price complexity levels, which accommodates concave and convex confusion technologies. In symmetric equilibrium, the probability of using high complexity increases in the number of firms. In the limit, as the number of competitors goes to infinity, firms use high complexity almost surely but the impact on consumer welfare depends on the characteristics of the confusion technology. Specifically, industry profits converge to the highest level with concave confusion technologies and to the lowest level when with convex confusion technologies. An improvement in consumer sophistication increases consumer welfare but does not reduce market complexity.

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