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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Consumer protection; search; price caps; advertising
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness