Price Competition under Limited Comparability

This paper studies market competition when firms can influence consumers’ ability to compare market alternatives, through their choice of price “formats”. In our model, the ability of a consumer to make a comparison depends on the firms’ format choices. Our main results concern the interaction between firms’ equilibrium price and format decisions and its implications for industry profits and consumer switching rates. In particular, market forces drive down the firms’ profits to a “constrained competitive” benchmark if and only if the comparability structure satisfies a property which we interpret as a form of “frame neutrality”. The same property is necessary for equilibrium behavior to display statistical independence between price and format decisions. We also show that narrow regulatory interventions that aim to facilitate comparisons may have an anticompetitive effect.


Issue Date:
2011-06
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/275750
Language:
English
Total Pages:
38




 Record created 2018-08-09, last modified 2020-10-28

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)