Choosing Whether to Compete: Price and Format Competition with Consumer Confusion

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe run a market experiment where firms can choose not only their price but also whether to present comparable offers. They are faced with artificial demand from consumers who make mistakes when assessing the net value of products on the market. If some offers are comparable however, some consumers favor the best of the comparable offers vs. non-comparable offers. We vary the number of such consumers as well as the strength of their preferences for the best of the comparable offers. In treatments where firms observe the past decisions of their competitors, firms learn not to present comparable offers especially when many consumers prefer comparable offers. This occurs after initial periods with strong competition and leads to lower welfare for all consumers. In treatments where firms cannot monitor the competition, firms end up having to present comparable offers, which leads to an improvement in welfare for all consumers.

Putting on a tight leash and levelling playing field: An experiment in strategic obfuscation and consumer protection

“…Normann and Wenzel (2014) present an experiment where sellers can coordinate shrouding of an add-on product and find that the shrouding does only occur in concentrated markets. Relatedly, Crosetto and Gaudeul (2014) report an experiment where sellers can choose a price format. They find that, if rival's behaviour is observable, firms are able to coordinate on shrouded formats.…”

Drip pricing and its regulation: Experimental evidence

“…On the seller side, there exist incentives to shroud prices or deliberately confuse consumers, especially when consumers are suscepti-ble to this type of confusion (Kalayci andPotters, 2011, Kalayci, 2015). Often, not even competitive market conditions can keep sellers from exploiting consumer limitations via complex prices (Kalayci, 2016, Normann and Wenzel, 2017, Crosetto and Gaudeul, 2017.…”