Does Product Complexity Matter for Competition in Experimental Retail Markets?

Abstract

We describe a first experiment on whether product complexity affects competition and consumers in retail markets. We are unable to detect a systematic effect of product complexity on prices, except insofar as the demand elasticity for complex products is higher. However, there is qualified evidence that complex products have the potential to induce consumers to buy more than they would otherwise. In this sense, consumer exploitability in quantities cannot be ruled out. We also find evidence for shaping effects: consumers' preferences are shaped by past experience with prices, and firms may in principle exploit this to sell more.

Keywords: consumer market, product complexity, complexity aversion, complexity exploitation, bounded rationality

JEL Classification: C91, D12, D21, L15