Strategic price complexity in retail financial markets☆

Carlin, Bruce I.

doi:10.1016/j.jfineco.2008.05.002

Cited by 448 publications

(331 citation statements)

References 43 publications

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“…This finding is consistent with the informal intuition that high-priced firms benefit most from high search costs, as well as formal predictions by Carlin (2009) and Ellison and Wolitzky (2012).…”

Section: Limited Searchsupporting

confidence: 90%

“…They find positive correlations between market level obfuscation, price levels, and price dispersion, consistent with the idea that obfuscation raises search costs (Ellison and Wolitzky, 2012) and search costs raise both price levels and price dispersion (Stahl, 1989). Muir et al (2013) also find negative correlation between market concentration and obfuscation, consistent with the idea that obfuscation is employed to soften competition (Carlin, 2009;Wilson, 2010;Ellison and Wolitzky, 2012). Finally, Muir et al (2013) find that, within markets, firm prices are positively correlated with obfuscation.…”

Section: Limited Searchmentioning

confidence: 76%

“…Naturally, a firm with a cost advantage over its competitors might both set a low price and try to facilitate price comparison shopping. In other cases, however, firms may find it more profitable to intentionally obfuscate their prices, making them more complex and less transparent simply to make it harder for consumers to comparison shop (Carlin, 2009;Wilson, 2010;Ellison and Wolitzky, 2012). Models of search typically predict that search costs raise equilibrium prices (e.g.…”

Section: Limited Searchmentioning

confidence: 99%

“…However, it seems reasonable to expect consumers to be more sophisticated, and recognise that if balance fees are identical then funds should be compared on flow fees. This allows consumers to identify the cheaper option without 14 A reduced form exception is Carlin (2009), which like Varian (1980), assumes that consumers are either informed and choose the lowest price or are uninformed and choose randomly. Unlike Varian (1980), Carlin (2009) assumes that the fraction of uninformed consumers is increasing in each firm i's prior choice of a scalar ki, interpreted as complexity.…”

Section: Models Of Price Confusion and Price Obfuscationmentioning

confidence: 99%

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Failing to Choose the Best Price: Theory, Evidence, and Policy

Grubb

2015

Rev Ind Organ

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Both the "law of one price" and Bertrand's (1883) prediction of marginal cost pricing for homogeneous goods rest on the assumption that consumers will choose the best price. In practice, consumers often fail to choose the best price because they search too little, become confused comparing prices, and then show excessive inertia through too little switching away from past choices or default options. This is particularly true when price is a vector rather than a scalar, and consumers have limited experience in the relevant market. All three mistakes may contribute to positive markups that fail to diminish as the number of competing sellers increases. Firms may have an incentive to exacerbate these problems by obfuscating prices, thereby using complexity to make price comparisons difficult and soften competition. Possible regulatory interventions include simplifying the choice environment, for instance by restricting price to be a scalar, advising consumers of their expected costs under each option, or choosing on behalf of consumers. * Boston College, michael.grubb@bc.edu, https://www2.bc.edu/michael-grubb/. I am grateful to Mark Armstrong, Ben Handel, and Rani Spiegler for careful reading and many helpful comments on an earlier draft. I also thank Vera Sharunova for her excellent research assistance.

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Section: Limited Searchsupporting

confidence: 90%

Section: Limited Searchmentioning

confidence: 76%

Section: Limited Searchmentioning

confidence: 99%

Section: Models Of Price Confusion and Price Obfuscationmentioning

confidence: 99%

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Failing to Choose the Best Price: Theory, Evidence, and Policy

Grubb

2015

Rev Ind Organ

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“…Such limitations include for example limits on the ability to consider all options due to search costs (Carlin, 2009;Wilson, 2010;Ellison and Wolitzky, 2012), difficulties in evaluating and comparing products (Spiegler, 2006;Piccione and Spiegler, 2012;Gaudeul and Sugden, 2012;Chioveanu and Zhou, 2013;Spiegler, 2014), or naivety in not considering the hidden costs of using a product (Ellison, 2005;Gabaix and Laibson, 2006;Heidhues et al, 2012;Wenzel, 2014). The literature generally argues that firms can exploit the limitations of consumers even when market conditions are otherwise competitive.…”

Section: Introductionmentioning

confidence: 99%

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

Crosetto

Gaudeul

2014

SSRN Journal

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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.

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New Mortgage‐Alternative Products for Primary Mortgage Markets in China and CIS/CEE Countries

2012

Risk in the Global Real Estate Market

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Strategic price complexity in retail financial markets☆

Cited by 448 publications

References 43 publications

Failing to Choose the Best Price: Theory, Evidence, and Policy

Failing to Choose the Best Price: Theory, Evidence, and Policy

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

New Mortgage‐Alternative Products for Primary Mortgage Markets in China and CIS/CEE Countries

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