Spurious Complexity and Common Standards in Markets for Consumer Goods

CCP Working Paper No. 07-20

36 Pages Posted: 5 Dec 2007

See all articles by Alexia Gaudeul

Alexia Gaudeul

Georg-August-Universität Göttingen

Robert Sugden

University of East Anglia - School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: November 2007

Abstract

Behavioural and industrial economists have argued that, because of cognitive limitations, consumers are liable to make sub-optimal choices in complex decision problems. Firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. This paper models a countervailing force. Consumers' choice problems are simplified if competing firms follow common conventions about tariff structures. Because such a 'common standard' promotes price competition, a firm's use of it signals that its products offer value for money. If consumers recognize this effect, there can be a stable equilibrium in which firms use common standards and set competitive prices.

Keywords: decision-making, naïve consumers, savvy consumers, price competition, common standard effect, cognitive limitations

JEL Classification: D83, L13, L15, L51

Suggested Citation

Gaudeul, Alexia and Sugden, Robert, Spurious Complexity and Common Standards in Markets for Consumer Goods (November 2007). CCP Working Paper No. 07-20. Available at SSRN: https://ssrn.com/abstract=1038461 or http://dx.doi.org/10.2139/ssrn.1038461

Alexia Gaudeul (Contact Author)

Georg-August-Universität Göttingen ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49 (0) 551 39 7333 (Phone)

HOME PAGE: http://agaudeul.free.fr

Robert Sugden

University of East Anglia - School of Economics ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+44 (0) 1603 593423 (Phone)

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