Inferior Products and Profitable Deception

Evaluating Behaviorally Motivated Policy: Experimental Evidence from the Lightbulb Market

“…Similarly, it seems reasonable to assume that consumers optimize relative to lightbulb lifetimes and energy costs after we provide them with information about these attributes. Providing information plausibly eliminates the following types of biases: (ii) Exogenous inattention to energy as a "shrouded" add-on cost, related to or Heidhues, Kőszegi, and Murooka (2014).…”

Exploitative Innovation

“…The game has two stages, an innovation stage and a price-setting stage. The price-setting stage is a variant of the model in Heidhues, Kőszegi, and Murooka (2014), and we begin by describing this stage. There are n ≥ 3 firms competing for a unit mass of naive consumers who value firm n 's product at v n > 0 and are looking to buy at most one item.…”

“…Section I introduces our model, which consists of a simultaneous-move price-competition stage modeled after Gabaix and Laibson (2006) and Heidhues, Kőszegi, and Murooka (2014), and a preceding innovation stage. At the price-competition stage, firms selling perfect substitutes each set a transparent upfront price as well as an additional price, and unless at least one firm decides to costlessly unshroud (i.e., educate consumers about) additional prices, naive consumers ignore these prices when making purchase decisions.…”

Protecting buyers from fine print

“…This form of protection is also absent in Schwartz and Wilde's (1983) price search model, where sellers must o¤er the same terms to all buyers. Heidhues et al (2014) Section 4.2 builds on Gabaix and Laibson (2006) by assuming that sellers o¤er a menu of products (rather than of contracts), each bundling the base product and the add-on. 3 Heidhues et al show that trade is e¢cient if enough buyers are sophisticated (contrary to our results), and that sellers use the menu to separate buyers, as in our model.…”